The End of Small Business Financing with IRA and 401k Funds? (Part 3) October 21, 2009
Posted by Jeff Nabers in Self Directed IRA/401k.Tags: 401, 401k, agency, audeo, benetrends, business startup, ersop, esop, financial, financing, funding, government, guidant, ira, irs, law, plan, president, profit sharing, QES, qualying employer securities, rainmaker, regulation, robs, rollover, ruling, scheme, self directed, small business, strategy
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Ok, now it’s time to solve the mystery. (Final Post) [see previous here]
In 1978 Jimmy Carter reorganized the government with this order, and this took the issue of retirement account prohibited transactions away from the domain of the IRS and gave it to the Department of Labor (DOL).
This fact was unknown to (or possibly ignored by) the ROBS promoters who claimed the IRS ROBS letter confirmed the validity of the ROBS strategy. The truth is that the IRS letter did not say whether or not the ROBS strategy creates a prohibited transaction because the IRS didn’t have the authority to say it. It was the authority of DOL. Ah, what fun bureaucracy can be.
Speaking with the Proper Authority
Now, I’ve known about this transfer of authority ever since the creator of the IRA LLC (late attorney Debra Buchanan) told me about it back in 2004. So I’ve been in close contact with DOL employees for several years. Here’s where the bureaucracy gets funny (or scary, depending on how you look at it).
A couple of weeks after the IRS ROBS letter came out, I called my friendly DOL contacts to ask, “What do you (more…)
The End of Small Business Financing with IRA and 401k Funds? (Part 2) October 19, 2009
Posted by Jeff Nabers in Self Directed IRA/401k.Tags: 401, 401k, agency, audeo, benetrends, business startup, ersop, esop, financial, financing, funding, government, guidant, ira, irs, law, plan, president, profit sharing, QES, qualying employer securities, rainmaker, regulation, robs, rollover, ruling, scheme, self directed, small business, strategy
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[This is a continuation of a previous post. You should read that one first so this makes sense.]
The IRS Responds
For the first time ever, the IRS actually addressed the “financing a small business with an IRA or 401(k)” strategy. They called it “ROBS” for “roll over business startup,” and issued a letter on October 1, 2008. This letter basically stated:
- We know about the ROBS strategy
- We are concerned about it for several reasons
Celebrate and Ignore
Most ROBS promoters spun the IRS ROBS letter as a long-awaited government blessing for the strategy. They said that the concerns that the IRS listed were administrative errors, such as (more…)
The End of Small Business Financing with IRA and 401k Funds? (Part 1) October 15, 2009
Posted by Jeff Nabers in Self Directed IRA/401k.Tags: 401, agency, audeo, benetrends, business startup, ersop, esop, financial, financing, funding, government, guidant, ira, irs, law, plan, president, profit sharing, QES, qualying employer securities, rainmaker, regulation, robs, rollover, ruling, scheme, self directed, small business, strategy
6 comments
Guidant calls it Audeo. Benetrends calls it Rainmaker. SDCooper calls it ERSOP. It goes by many names and it’s gotten a lot of attention from the franchise industry and, as of about a year ago, the IRS. The IRS calls it “ROBS” for Roll-Over Business Startup.
What is it?
It’s a strategy where a person with retirement funds:
- Forms a C corporation.
- Uses the new C corporation to adopt a 401(k) or profit-sharing plan.
- Performs a rollover from existing retirement funds (IRA, 401k, etc) into the new 401(k) plan.
- Directs the new 401(k) plan to invest into the new C corporation by purchasing shares of stock.
- Now this person has a C corporation with some or all of their retirement funds in it, and they are told they can use the funds to run the corporation, launch a venture, buy a franchise, and even pay themselves a salary.
Special Powers – For Good or Evil?
This is a tremendously (more…)
Young investors can afford to play it safe when it comes to investing May 12, 2009
Posted by reformedinvestor in Money, Self Directed IRA/401k.Tags: investing, stock market, strategy, wealth
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[Post contributed by reformedinvestor]
I recently learned that I may have been given bad investment advice. I’m 32 now but I started working with a financial advisor when I was 26 years old. At the time the stock market was the way to go. If you weren’t invested in the stock market you were missing out. So I socked all my savings away in the safest and most lucrative thing I knew, Wall Street.
My financial advisor told me that because I was so young, I should invest a bit more aggressively. It made perfect sense; after all, I had 30-40 years to go until retirement. I could ride the ups and downs of the market cycles.
But what no one told me (more…)
Tool for Battling Coming Inflation February 19, 2009
Posted by Jeff Nabers in Money, Personal Enjoyment, Personal Productivity, real estate, Self Directed IRA/401k.Tags: alternative asset, alternative investment, bail, bailout, bernanke, building, congress, currency, debasement, economy, fed, federal reserve, fiat, fiscal, government, inflaiton, ira, ira llc, monetary, obama, out, paulson, policy, responsibility, rubino, schiff, self directed, solo, Solo 401k, stimulus, strategies, strategy, tax, tool, treasury, wealth
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If you’ve been following my blog, you know that I take great interest in understanding money. Why every single human who uses money on a regular basis doesn’t also share this interest is beyond me.
With trillions of dollars created by actions of Congress, the Federal Reserve, and the Treasury Department, the concern for coming inflation can only spread. This video explains why tax deferred investment vehicles are the best tool for battling inflation and can possibly even (more…)
The Top 5 Investing Myths of 2008 January 5, 2009
Posted by Jeff Nabers in Money, Personal Enjoyment, Personal Productivity, real estate, Self Directed IRA/401k.Tags: 2008, 2009, 401k, adviser, advisor, bailout, financial planner, government, invest, investing, invstment, ira, ira llc, losses, madoff, meltdown, Money, plan, recover, regain, scam, SEC, self directed, solo, Solo 401k, stock market, strategy, wall street
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2008 was a very interesting year to say the least. Possibly the most productive outcome of the year was the restless message of “rethink things” coming from the little voice beckoning each of us in our minds.
Myth #1… The SEC keeps investment information honest and accurate
The Securities and Exchange Commission (abbr “SEC”) should be done away with. The Madoff debacle along with the dozens of other securities frauds that draw less (or no) attention every single year should be evidence that the SEC is failing. It is tasked with making investments safe and transparent and is having the opposite effect. When an investor or fund manager is considering a particular investment, they believe that the investment is truthful, transparent, and honest because the SEC is supposed to regulate it into such a position. The result can be decreased due diligence because of reliance on the SEC. This leads to disaster when the SEC ends up not doing its job very well. If we didn’t expect the SEC to be “keeping investing safe and honest” then investors and asset managers would take a closer look at investment opportunities which would result in better thought out decisions. I’m not saying the SEC should be doing a better job – I’m saying we shouldn’t expect regulation to create investment safety in the first place.
I believe the SEC does more harm than good by offering a false sense of security.
Myth #2… Financial planners give good investment advice
Something very interesting happened in the last 15 or so years: Stock brokerages spent millions of dollars convincing the American public that securities salesman had become “financial planners”. That move alone shifted the perception of almost every American and the magnitude of Wall Street’s success (theirs, not yours). A “stock broker” is to securities as a car salesman is to cars… but a financial planner sounds a lot like somebody whose job it is to plan your finances. What actually changed to make stock brokers become financial planners? (more…)
Where to form your LLC for virtual or foreign business activities September 17, 2008
Posted by Jeff Nabers in real estate, Self Directed IRA/401k.Tags: 401k, invest, investment, ira, limited liability company, llc, nevada, nexus, NV, OR, oregon, ownership, real estate, self directed, solo, Solo 401k, strategy, tax, tennesee, TN, WY, wyoming
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When you form an LLC (or Corporation), it is registered and created at the state level. You can choose to form an LLC in any state, regardless of your state of residency.
Nexus
When you have business activity that clearly occurs in a specific state, you are said to have “nexus” in that state. If your LLC has nexus in a state, it will probably need to register itself in that state and pay any applicable taxes for doing business there. An LLC is a pass-through entity, meaning it is designed to have zero taxation because income taxes are paid by the LLC owner(s) on their tax return. Unfortunately, some states have created franchise and/or excise taxes that can be costly.
Virtual Businesses
If you are starting an internet business (or any other business that doesn’t create nexus in a specific state) you can choose to form your LLC in a state (more…)
The Cost of Isolation March 19, 2008
Posted by Jeff Nabers in Self Directed IRA/401k.Tags: 401k, investment, ira, profit, self directed, strategy
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Most of my product and service development is centered around the theory that for most average Americans, a self directed IRA/401k actually is too risky. The conventional way of investing involves pushing a button or placing a phone call to effect a securities transaction. This new way of investing holds potential power, but for most people simply opening an account and then being thrown out to the wolves doesn’t work very well. This type of balanced viewpoint is not usually spotlighted by companies who make their money in convincing people to open self directed accounts. There is a lot of focus on opening accounts and setting up LLCs, but very little focus on how to actually find, evaluate, and buy profitable alternative assets.
So how well are accountholders doing in isolation? It’s very hard to tell because (more…)
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