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
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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…)
The Next Generation of Small Business Funding September 1, 2009
Posted by Jeff Nabers in Money, Personal Enjoyment, Personal Productivity.Tags: angel, angel investor, capital, debt, entrepreneur, entrepreneurship, equity, financing, funding, investment, investor, loan, raising money, small business, startup, VC, venture capital, venture capitalist
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Each year entrepreneurs pitch Venture Capital firms in hopes that their startup company or business expansion will get funded by them. The vast majority do not get funded. Furthermore, “getting funding” almost always means the entrepreneur must sell a sizable piece of his company to the VC.
Getting funded by a VC is a dream, but it can easily turn into a nightmare for both the entrepreneur and the VC. Because the VC owns a piece of the company, if further rounds of funding are needed in the future it could mean diluting only the founder’s ownership, depending on how the contracts were setup. It’s not too uncommon for founders to eventually wind up with a minority stake in their own company and to lose control of it. For the VC, there’s a big chance of failure. They usually need an exit strategy, such as taking the company public to sell its shares to the marketplace or to sell the company to a private party. But before they sell it, they need to try to juice up the revenue of the company to max out the sales price. When maxing out revenue becomes the primary unconditional focus, it’s easy for the business to go in a very different direction than the founder had intended.
The above horrors can happen when an entrepreneur does get funding. Let’s not forget that most entrepreneurs seeking capital just don’t get funded.
These are problems. And yet the world has a way about finding solutions to problems and getting them to those who can benefit. Sometimes the solution can be so incredibly simple that it’s hard to believe. In the case of funding a small business, the solution I see is a matter of (more…)
Bail Yourself Out May 7, 2009
Posted by Jeff Nabers in Money, Self Directed IRA/401k.Tags: business owner, capital, cash, crisis, depression, distribution, forbes, funding, ira, irs, loan, penalties, recession, self directed, solo, Solo 401k, taxes
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My new article on Forbes.com…
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For entrepreneurs, getting through these financially turbulent times may require some imaginative [read whole article on Forbes.com]
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