Self-Invested Can your retirement savings help solve your financing problems?
By Sara Wilson
Opinions expressed by BIZ Experiences contributors are their own.
Gaining access to startup capital is often a huge hurdle. Nowmany BIZ Experiencess are turning to companies like BeneTrends Inc.,Directed Equity and Equity Trust Co. to get early access toretirement savings--without the normal penalties.
How does it work? Len Fischer, founder of San Diego-basedBeneTrends, explains his company's four-step process. First, aC corporation is established for the new business, and a retirementplan is then created under the new C corporation. Next, funds arerolled over from the person's existing retirement plan into theC corporation's new retirement plan. Finally, the newretirement plan purchases stock in the C corporation, leaving thecapital in the business owner's hands. This process takes abouttwo to four weeks and costs $4,800 plus state filing fees.
Don Patrick, managing director of Integrated Financial Group, afinancial planning firm in
Atlanta, offers the following advice to avoid potential problemswith this type of financing:
- Carefully research the company that carries out theprocess to make sure it's legitimate.
- Get an IRS letter ruling that documents approval of yourindividual situation.
- Operate the C corporation properly, as there's ahigher chance of being audited due to both the type of corporationand the type of financing used.
- Comply with the main principles of the EmployeeRetirement Income Security Act of 1974.
- Keep in mind that losses cannot be deducted if thebusiness fails.
- Employ a team of professionals. "Retain a CPA, anattorney and a financial planner, and let them work as ateam," says Patrick. "This is still an area that's[on] the fringe of things."
