Nov 02

Why Choose IRA Financial Group When Using IRA Funds to Start a Business

The IRA Financial Group was founded by a group of top law firm tax and ERISA professionals who have worked at some of the largest law firms in the country, including White & Case LLP and Dewey & LeBoeuf LLP.

The legality of using retirement funds to purchase employer corporate stock is firmly established in the Internal Revenue Code and under ERISA law. Although codified under law, the IRS has been concerned that a number of promoters marketing this type of structure have not had the expertise to develop a structure that is fully compliant with IRS and ERISA rules and regulations. With this in mind, the IRA Financial Group’s in-house retirement tax professionals spent the last two years carefully studying IRS materials and guidance in order to design an IRS and ERISA compliant structure for using retirement funds to acquire or invest in a business tax free!

Why Choose IRA Financial Group When Using IRA Funds to Start a Business

Why Choose IRA Financial Group When Using IRA Funds to Start a Business

The Business Acquisition & Compliance Solution Structure (“BACSS”) was developed to specifically address and solve each of the non-compliant areas addressed by the IRS creating a business acquisition and funding solution that is in full compliance with IRS and ERISA rules and procedures. This is similar to that of the Rollover for Business Startup, also known as ROBS.  Unlike our competitors who have been offering this type of structure for many years, which according to the IRS, a significant portion have been found to be non-compliant, the IRA Financial Group has patiently waited for clear IRS guidance before offering a business acquisition structure that would be fully compliant with IRS and ERISA rules and procedures. Because the IRS has stressed the importance of compliance when using retirement funds to purchase a business, it is crucial to work with a company that is operated by a team of in-house tax and ERISA professionals who have worked at some of the largest law firms in the United States.

We have developed a process that ensures speed and compliance, by using standardized procedures that work via phone, e-mail, fax, and mail. Your funds will typically be ready for investment into your new or existing business within 14-21 days.

Contact us today at 800-472-0646 to learn more about how you can use your retirement funds to start a new business or grow an existing business tax-free and without penalties!

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Oct 05

What Are the Advantages of Using IRA Financial Group’s Business Acquisition Solution?

There are many advantages of using IRA Financial Group’s Business Acquisition & Compliance Solution Structure (BACSS), also known as ROBS, when using your IRA funds to start a business:

Tax Advantages: With the BACSS you have the ability to use your retirement funds to acquire a new business or grow an existing business tax-free!

Start or Grow a Business Tax-Free: With BACSS, you can access your retirement funds to start or grow a business tax free and without penalty!

Access Funds without Penalties: Accessing your retirement funds can prove expensive if not structured properly. Distributions before retirement age can cost you up to 45% in taxes and penalties. With BACSS, you can access your retirement funds to start or grow a business tax-free and without penalty!

Acquire or Build a Business with No Debt: With BACSS, you can start or grow a business without ever borrowing a penny or touching the home equity you worked so hard to build.

What Are the Advantages of Using IRA Financial Group's Business Acquisition Solution?Control your Future: With BACSS, you will be in control of your retirement funds. BACSS is designed to make you the trustee of the plan giving you “Checkbook Control” over your retirement funds. As trustee of the plan you will have the ability to invest your funds to acquire or grow a business tax-free and without penalty!

Compliance with IRS and ERISA Rules: BACSS was designed as an IRS and ERISA compliant structure for using retirement funds to acquire or invest in a business tax-free! The IRA Financial Group’s in-house retirement tax professionals spent the last two years carefully studying IRS guidance in order to design an IRS and ERISA compliant structure for using retirement funds to acquire or invest in a business tax-free! Unlike our competitors who have been offering this type of structure for many years, prior to receiving guidance from the IRS and with a significant portion of their activity having been found to be non-compliant, the IRA Financial Group has patiently waited for clear IRS guidance before offering a structure that would be fully compliant with IRS and ERISA rules and procedures. Because the IRS has stressed the importance of compliance when using retirement funds to purchase a business, it is crucial to work with a company that is operated by a team of in-house tax and ERISA professionals who have worked at some of the largest law firms in the United States, including White & Case LLP and Dewey & LeBoeuf LLP to ensure a fully compliant structure.

Speed: We have developed a process that ensures speed and compliance, by using standardized procedures that work via phone, e-mail, fax, and mail. Your funds will be ready for investment into your new or existing business within 14-21 days.

Value: With the IRA Financial Group, you will be working directly with our in-house tax and ERISA professionals to design an IRS and ERISA compliant structure that will allow you to use your retirement funds to acquire or grow a business tax-free at a fair and reasonable price.

Use your retirement funds to purchase a new business or franchise tax-free and without penalty!

It’s 100% IRS compliant!

Call us today at 800-472-0646 to learn more about how you can use your retirement funds to start a new business or grow an existing business tax-free, in full IRS compliance, and without penalties!

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Jul 17

Is the Rollover Business Startup (ROBS) Legal?

The Employee Retirement Income Security Act of 1974 (otherwise known as ERISA) and the Internal Revenue Code clearly allow for the use of retirement funds to acquire or invest in a new or existing business as long as the transaction complies with IRS and ERISA rules and regulations.

Business owners have been using retirement funds to help acquire or invest in a business for a number of years. A number of promoters have promoted these types of transactions under the name “ROBS”. Even though this type of transaction is permitted under IRS and ERISA rules, the IRS believed a significant number of the promoters were not taking the necessary steps to structure a transaction that is in full compliance with IRS and ERISA rules.

The October 1, 2008 Memorandum

On October 1, 2008, Michael Julianelle, Director, Employee Plans, signed a “Memorandum” approving IRS ROBS Examination Guidelines. The IRS stated that while this type of structure is legal and not considered an abusive tax avoidance transaction, the execution of these types of transactions, in many cases, have not been found to be in full compliance with IRS and ERISA rules and procedures. In the “Memorandum”, the IRS highlighted two compliance areas that they felt were not being adequately followed by the promoters implementing the structure during this time period.

The first non-compliance area of concern the IRS highlighted in the “Memorandum” was the lack of disclosure of the adopted 401(k) Plan to the company’s employees. The IRS believed that in too many instances the promoter was establishing a 401(k) Plan that was not adequately disclosed to all employees. Internal Revenue Code Section 401(a)(4) provides that under a qualified retirement plan, contributions or benefits provided under the plan must not discriminate in favor of highly compensated employees. In addition, the promoters were encouraging the business owner who had used their retirement funds to purchase company stock to not provide the same benefit to their employees.

The second non-compliance area of concern the IRS highlighted in the “Memorandum” was establishing an independent appraisal to determine the fair market value of the business being purchased.

Internal Revenue Code Section 4975(c)(1 )(A) defines a prohibited transaction as a sale, exchange or lease of any property between a plan and a disqualified person. Internal Revenue Code Section 4975(d)(13) provides an exemption from prohibited transaction consideration for any transaction that is exempt from ERISA Section 406, by reason of ERISA Section 408(e), which addresses certain transactions involving employer stock. ERISA Section 408(e), and ERISA Regulation Section 2550,408e promulgated thereunder, provides an exemption from ERISA Section 406 for acquisitions or sales of qualifying employer securities, subject to a requirement that the acquisition or sale must be for “adequate consideration.” Except in the case of a “marketable obligation”, adequate consideration for this purpose means a price not less favorable than the price determined under ERISA Section 3(18). ERISA Section 3(18) provides in relevant part that, in the case of an asset other than a security for which there is no generally recognized market, adequate consideration means the fair market value of the asset as determined in good faith by the trustee or named fiduciary pursuant to the terms of the plan and in accordance with regulations.

An exchange of company stock between the plan and its employer-sponsor would be a prohibited transaction, unless the requirements of ERISA Section 408(e) are met (the acquisition or sale of the qualifying employer securities must be for adequate consideration).

Therefore, valuation of the purchase corporate stock is a relevant issue. Since, in some cases, the company may be newly established, there could be a question of whether the stock is indeed worth the value of the purchase price exchanged. If the transaction has not been for adequate consideration, it would have to be corrected, for example, by the corporation’s redemption of the stock from the plan and replacing it with cash equal to its fair market value, plus an additional interest factor for lost plan earnings. In addition, the IRS asserts that a valuation-related prohibited transaction issue may arise where the start-up enterprise does not actually “start-up.” Many promoters have been advising clients that they do not need to secure appraisal which would seemingly contradict the IRS’s position outlined in the “Memorandum”. In addition, the promoters who have provided clients with a valuation have been providing clients with a single line valuation statement generally approximating available retirement funds, which the IRS considers inadequate.

The August 27, 2010 IRS Public Phone Forum

On August 27, 2010, almost two years after publishing the “Memorandum”, the IRS held a public phone forum open to the public which covered transactions involving using retirement funds to purchase a business. Monika Templeman, Director of Employee Plans Examinations and Colleen Patton, Area Manager of Employee Plans Examinations for the Pacific Coast spent considerable time discussing the IRS’s position on this subject. Monika Templeman began the presentation reaffirming the IRS’s position that a transaction involving the use of retirement funds to purchase a new business is legal and not an abusive tax-avoidance transaction as long as the transaction complies with IRS and ERISA rules and procedures. The concern the IRS has had with these types of transactions is that the promoters who have been offering these transactions have not had the expertise to develop structures that are fully compliant with IRS and ERISA rules and regulations. The IRS added that a large percentage of the transactions they reviewed were in non-compliance largely due to the following non-compliance issues: (i) failure by the promoters to develop a structure that requires the new company to disclose the new 401(k) Plan to the company’s employees and, (ii) the failure to require the client to secure an independent appraisal to determine the fair market value of the company stock being purchased by the 401(k) Plan. The IRS concluded by stating that a transaction using retirement funds to acquire a business is legal and not prohibited so long as the transaction is structured correctly to comply with IRS and ERISA rules and procedures.

The IRA Financial Group’s Solution

In light of the 2008 “Memorandum” and the most recent IRS comments outlined on the August 27, 2010 public phone forum, the IRA Financial Group’s in-house tax and ERISA professionals spent the better part of two years studying IRS materials and guidance in order to design an IRS and ERISA compliant structure for using retirement funds to acquire or invest in a business tax-free! Unlike our competitors who have been offering this type of structure for many years, which according to the IRS, a significant portion have been found to be non-compliant, the IRA Financial Group has patiently waited for clear IRS guidance before offering a structure that would be fully compliant with IRS and ERISA rules and procedures.

BACSS was developed to specifically address and solve each of the non-compliant areas addressed by the IRS creating a business acquisition and funding solution that is in full compliance with IRS and ERISA rules and procedures. Because the IRS has stressed the importance of compliance when using retirement funds to purchase a business, it is crucial to work with a company that is operated by a team of in-house tax and ERISA professionals who have worked at some of the largest law firms in the United States, including White & Case LLP and Dewey & LeBoeuf LLP to ensure the structure satisfies IRS and ERISA rules and procedures.

Call us today at 800-472-0646 to learn more about how you can use your retirement funds to start a new business or grow an existing business tax-free, in full IRS compliance, and without penalties!

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Jun 01

The Law Concerning the Rollover Business Startup Solution

You may use your retirement funds to start your own business using the Rollover Business Startup Solution, also known as ROBS.  The Internal Revenue Code and ERISA have firmly codified the ability to use retirement funds to invest in the stock of a sponsoring company as long as certain IRS and ERISA rules are followed.

Internal Revenue Code Section 4975(c) includes a list of transactions that the IRS deems “prohibited”. However, Internal Revenue Code Section 4975(d) lists a number of exemptions to the prohibited transaction rules. Specifically Internal Revenue Code Section 4975(d)(13) lists an exemption for any transaction which is exempt from section 406 of the Employee Retirement Income Security Act of 1974 (ERISA) by reason of section 408(e) of such Act.

The Law Concerning the Rollover Business Startup SolutionSection 408(e) provides that section 406 shall not apply to the acquisition or sale by a plan of qualifying employer securities (as defined in section 407(d)(5), provided that: (1) the acquisition or sale is for adequate consideration; (2) no commission is charged with respect to the acquisition or sale; and (3) the plan is an eligible individual account plan (as defined in section 407(d)(3)). A 401(k) plan fits in to this definition.

Pursuant to ERISA Section 406, the acquisition or sale must be for “adequate consideration.” Except in the case of a “marketable obligation”, adequate consideration for this purpose means a price not less favorable than the price determined under ERISA § 3(18),subject to a requirement that the acquisition or sale must be for “adequate consideration.” An exchange of company stock between the plan and its employer-sponsor would be a prohibited transaction, unless the requirements of ERISA § 408(e) are met.

The exemptions in 4975(d) shall not apply to items described in Internal Revenue Code Section 4975(f)(6). Section 4975(f)(6)(A) states that the exemption of 4975(d) shall not apply in the case of a trust described in Internal Revenue Code Section 401(a), which is part of a plan providing contributions or benefits for employees some or all of whom are owner-employees (other than paragraphs (9) and (12)) shall not apply to a transaction in which the plan directly or indirectly— (i) lends any part of the corpus or income of the plan to, (ii) pays any compensation for personal services rendered to the plan to, or (iii) acquires for the plan any property from or sells any property to, any such owner-employee, a member of the family of any such owner-employee, or any corporation in which any such owner-employee owns, directly or indirectly, 50 percent or more of the total combined voting power of all classes of stock entitled to vote or 50 percent or more of the total value of shares of all classes of stock of the corporation. Therefore, since the Plan will be purchasing “qualified employer securities” directly from the newly formed corporation, the purchase of corporate stock will not be treated as a prohibited transaction pursuant to Internal Revenue Code Section 4975.

ERISA Section 407(b)(1) generally places limitations on the acquisition and holding of Qualifying Employer Securities (normally 10% of plan assets). However, the Section includes an exception for “eligible individual account plans” (ERISA 407(b)(1)). As set forth in ERISA Section 407(d)(3), a qualified profit sharing plan is included in the definition of “eligible individual account plans”. In addition, pursuant to ERISA Section 404(a)(2), these plans do not violate ERISA’s diversification and, to the extent it requires diversification, prudence requirements.

Call us today at 800-472-0646 to learn more about how you can use your retirement funds to start a new business or grow an existing business tax-free, in full IRS compliance, and without penalties!

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Apr 17

Beware the IRS When Using the Rollover Business Start-Up to Fund a Business

When it comes to using retirement funds to buy or finance a business that you or another “disqualified person” will be involved in personally, there is only one legal way to do it and that is through the Business Acquisition Solution, also known as a Rollover Business Start-Up solution (ROBS). The ROBS solution takes advantage of an exception in the tax code under Internal Revenue Code (“IRC”) Section 4975(d) that allows one to use 401(k) plan funds to buy stock in a “C” Corporation, which is known as “qualifying employer securities”. The exception to the IRS prohibited transaction rules found in IRC 4975(d) requires that a 401(k) plan buy “qualifying employer securities”, which is defined as stock of a “C” Corporation. This is the reason why one cannot use a self-directed IRA LLC to invest in a business the IRA holder or a disqualified person will be personally involved in or why a 401(k) plan cannot invest in an LLC in which the plan participant or disqualified person will be involved in without triggering the prohibited transaction rules. Hence, in order to use retirement funds to invest in a business in which a disqualified person will be personally involve one needs a “C” Corporation to operate a business and adopt a 401(k) Plan

So How Does the ROBS Solution Work?

The structure typically involves the following sequential steps:

1.An entrepreneur or existing business owner establishes a new C Corporation;

2.The C Corporation adopts a prototype 401(k) plan that specifically permits plan participants to direct the investment of their plan accounts into a selection of investment options, including employer stock, also known as “qualifying employer securities.”

3.The entrepreneur elects to participate in the new 401(k) plan and, as permitted by the plan, directs a rollover or trustee-to-trustee transfer of retirement funds from another qualified retirement plan into the newly adopted 401(k) plan;

4.The entrepreneur then directs the investment of his or her 401(k) plan account to purchase the C Corporation’s newly issued stock at fair market value ( i.e., the amount that the entrepreneur wishes to invest in the new business); and finally

5.The C Corporation utilizes the proceeds from the sale of stock to purchase an existing business or to begin a new venture.

Four Disadvantages of Establishing a ROBS

1. The “C” Corporation Requirement: Although there are advantages to establishing a “C” corporation, such as owner’s liability protection from the actions of the company, there are several disadvantages as well.

Beware the IRS When Using the Rollover Business Start-Up to Fund a Business2. Double Taxation: Corporations, unlike other companies that are considered sole proprietorships and partnerships, file their own taxes separately from their owners at their own tax rates. After the company’s profits are taxed at the corporate level, they are then distributed to the shareholders who have to report the amount received on their individual tax returns. The corporate tax rate is generally 15% for corporate profits under $50,000 and 35% for profits above $50,000. This isn’t the case for Sub-chapter S corporations or LLC, where the profits bypass being taxed at the corporate level and are distributed and taxed at the shareholder’s level. That is called pass-through taxation. For example, if we assume a 20% income tax rate for both corporation and individuals and a “C” Corporation earned $100 of profits, the “C” Corporation would be required to pay tax of $20 (20% of $100) and then the shareholder would be required to pay tax of $16 (20% of $80) on any dividend issued by the “C” Corporation to the shareholder. Whereas, in the case of an LLC or “S” Corporation, there is no entity level tax so the $100 would flow directly to the shareholder or LLC member and a tax of only $20% would be imposed at the shareholder level. Comparing this with the “C” Corporation example, by using a passthrough entity such as an “S” Corporation or LLC, the individual would save $16 in our example (total tax of $36 with a “C” Corporation versus $20 in the case of an LLC or “S” Corporation.

It is important to note that it can be argued that the disadvantage of double taxation bite does not impact retirement accounts (i.e. 401(k) plans) as much as individuals, since the dividend from the “C” Corporation to the 401(k) plan shareholder would be exempt from tax since a 401(k) plan is a tax-exempt retirement account. However, the double taxation is not eliminated but simply deferred until the 401(k) plan participant elects to take a 401(k) plan distribution, which would generally be subject to a second tax (the first tax would be applied at the “C” Corporation level). In contrast, if a 401(k) plan invested in an LLC, a passthrough entity for taxation, the income or gains from the LLC would generally flow back to the 401(k) plan without tax and the 401(k) plan participant would only be required to pay one tax when a distribution is taken.

Unfortunately, the IRS rules require a “C” Corporation be used when a retirement account holder wishes to use retirement funds to invest in a business they or another disqualified person will be involved in. The issue of double taxation is certainly one disadvantage of the ROBS solution, but it is generally perceived as better than paying tax and potentially a 10% early distribution penalty on a distribution from your retirement account.

Regulations and Formalities

Sub-chapter C corporations generally involve more corporate formalities than LLCs, for example. In general, “C” Corporations have to report annually to the states in which they’re incorporated, and the states in which they do a lot of business, on an annual basis. Also, “C” Corporations must observe certain formalities to be considered corporations. This includes holding regular board and shareholder meetings and issuing stock. Also, the names of corporate officers are made public, which is not required by businesses formed under different organizational structures.

401(k) Plan Administration

Even though 401(k) plan administration costs have come down significantly over the years, there is still a cost of offering a 401(k) plan to employees. In addition to having to make a 3% safe harbor contribution, which will be discussed below, 401(k) plans cost money to administer because there are many compliance issues that have to be monitored, there are many ongoing service and administration functions that have to be provided, and there are a host of education and communication services that are required to be offered to plan participants. It is not uncommon for a small business 401(k) Plan to cost anywhere from $750-$1500 annually for a third-party administration company to administer as well as file the annual IRS Form 5500 .

3. Matching Contributions: A safe harbor 401(k) Plan, which is a popular type of 401(k) plan for small businesses, offer employees who participate in the plan a 3% matching contribution made by the employer. Thus, for example, if the employee earns $40,000 in salary during the year and contributes 3% of the salary or $1200 to the 401(k) plan, the employer would contribute an additional $1200 (3% of the salary) to the individual 401(k) plan account. Taking this a step further, if the business has 5 employees and each employee makes $40,000 a year, the employer now has to make $6000 in employer matching contributions. Although the contributions are tax deductible to the employer, it is still additional funds that are being removed from the company and could impact the cash flow of a new small business.

4. Potential IRS Audit: Dating back to the 2005 or so, the IRS started focusing some attention on the ROBS solutions and some of the abuses they perceived were occurring.

To this end, on October 31, 2008, Michael Julianelle, Director, Employee Plans, signed a “Memorandum” approving IRS ROBS Examination Guidelines. The IRS stated that while this type of structure is legal and not considered an abusive tax avoidance transaction, the execution of these types of transactions, in many cases, have not been found to be in full compliance with IRS and ERISA rules and procedures. In the “Memorandum”, the IRS highlighted two compliance areas that they felt were not being adequately followed by the promoters implementing the structure during this time period. The first non-compliance area of concern the IRS highlighted in the “Memorandum” was the lack of disclosure of the adopted 401(k) Plan to the company’s employees and the second non-compliance area was establishing an independent appraisal to determine the fair market value of the business being purchased. In sum, the IRS was concerned that people were using their retirement funds to buy a business and either the business was not being purchased and the individual then used the funds for personal purposes, thus avoiding tax and potential penalties, or the business that was purchased closed, and the retirement account liquidated, thus, leaving the IRS without the potential to tax the retirement account in the future.

The IRS did not publicly comment on the ROBS solution again until August 27, 2010, almost two years after publishing the “Memorandum”, the IRS held a public phone forum open to the public which covered transactions involving using retirement funds to purchase a business. Monika Templeman, Director of Employee Plans Examinations and Colleen Patton, Area Manager of Employee Plans Examinations for the Pacific Coast spent considerable time discussing the IRS’s position on this subject. Monika Templeman began the presentation reaffirming the IRS’s position that a transaction involving the use of retirement funds to purchase a new business is legal and not an abusive tax-avoidance transaction as long as the transaction complies with IRS and ERISA rules and procedures. The concern the IRS has had with these types of transactions is that the promoters who have been offering these transactions have not had the expertise to develop structures that are fully compliant with IRS and ERISA rules and regulations. The IRS added that a large percentage of the transactions they reviewed were in non-compliance largely due to the following non-compliance issues: (i) failure by the promoters to develop a structure that requires the new company to disclose the new 401(k) Plan to the company’s employees and, (ii) the failure to require the client to secure an independent appraisal to determine the fair market value of the company stock being purchased by the 401(k) Plan. The IRS concluded by stating that a transaction using retirement funds to acquire a business is legal and not prohibited so long as the transaction is structured correctly to comply with IRS and ERISA rules and procedures.

So does the ROBS solution trigger an audit? No one knows what factors trigger an IRS audit, but although legal, the ROBS solution is something the IRS and Department of Labor is looking at. Again, if your structure is set-up properly and the funds are used to buy a business, the 401k plan is being offered to all eligible employees, a valuation of the stock purchased is performed, and the plan is compliant with all annual testing and IRS filing requirement, there is nothing to be concerned with if your plan was audited by the IRS or DOL.

To learn more about the benefits of the ROBS strategy, please contact a retirement tax expert at 800-472-0646.

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Mar 20

Why Use ROBS Instead of a Self-Directed IRA to Start a Business

The Business Acquisition & Compliance Solution Structure (BACSS) also known as the “Rollover Business Start-Up” (“ROBS”) Solution is an IRS and ERISA approved structure that allows an individual to purchase a new or existing business with retirement funds and be active in the business without triggering any of the IRS prohibited transaction rules. The ROBS solution qualifies for a special exemption set forth under IRC 4975(d) to certain prohibited transaction rules, which do not apply to a Self-Directed IRA structure.

How Does the ROBS structure work?

The ROBS arrangement typically involves rolling over a prior IRA or 401(k) plan account into a newly established 401(k) plan, which a start-up C Corporation business sponsored, and then investing the rollover 401(k) Plan funds in the stock of the new C Corporation. The funds are then deposited in the C Corporation bank account and are available for use for business purposes.

The following is how a typical ROBS structure works:

  • 1. Jim, an entrepreneur or existing business owner, establishes a new C Corporation in the state where the business will be operating. The ROBS structure must involve a C Corporation and not an LLC or S Corporation because the exemption to the IRS prohibited transaction rules under IRC 4975(d) involves the purchase of “Qualifying Employer Securities”, which is defined as stock of a Corporation. Using an LLC would not satisfy this definition and only individuals can be shareholders of an S Corporation and a 401(k) Plan is a trust.
  • 2. The new C Corporation adopts a prototype 401(k) plan that specifically permits the plan participants, including Jim, to direct the investment of their plan accounts into a selection of investments options, including employer stock, also known as “qualifying employer securities.
  • 3. Jim elects to participate in the new 401(k) plan and, as permitted by the plan, directs a rollover of a prior employer’s 401(k) Plan funds into the newly adopted 401(k) plan.
  • 4. Jim then directs the investment of his or her 401(k) plan account to purchase the C Corporation’s newly issued stock at fair market value (i.e., the amount that Jim wishes to invest in the new business).
  • 5. Jim also invests personal funds equal to more than 1% of the purchase price so that the structure is not considered an Employee Stock Option Plan (ESOP).
  • 6. The C Corporation utilizes the proceeds from the sale of stock (the amount of rollover funds and personal funds used) to purchase the assets for the new business.
  • 7. Joe would be able to earn a salary from the revenues of the business as well as personally guarantee any business loan.

What is the Difference between using a Self-Directed Vs. ROBS structure to buy a business?

In a lot of respects, using a Self-Directed IRA LLC or a 401(k) Plan to purchase stock in a corporation would seem to be subject to the same rules. However, as described above, using 401(k) Plan funds and not IRA funds allows one to take advantage of the prohibited transaction exemption under IRC 4975(d) for “Qualifying Employer Securities.”

The recent U.S. Tax Court case, Peek v. Commissioner, 140 T.C. No. 12 (May 9, 2013), highlights the risk and limitations involved when using a Self-Directed IRA to purchase business assets. In the Peek case, the taxpayers used IRA funds to invest in a corporation that ultimately purchased business assets. Because Mr. Peek used an IRA and not a 401(k) Plan to purchase the C Corporation stock, Mr. Peek was not able to earn a salary or personally guarantee a business loan, which ultimately was the cause of the IRS prohibited transaction rule violation.

The limitation of using a Self-Directed IRA LLC to buy a business is that the individual retirement account business owner would not be able to be actively involved in the business, earn a salary, or even personally guarantee a business loan. Whereas, if the business owner used a ROBS strategy, that individual would be able to be actively involved in the business, earn a salary, as well as personally guarantee a business loan without triggering the IRS prohibited transaction rules.

To learn more about the benefits of the ROBS (Rollover Business Startup) strategy, please contact a retirement tax expert at 800-472-0646.

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Mar 06

What Types of Alternate Investments Can You Make with a Self-Directed IRA?

A Self-Directed IRA LLC offers one the ability to use his or her retirement funds to make almost any type of investment on their own without requiring the consent of any custodian or person. The IRS only describes the type of investments that are prohibited, which are very few.   The main advantages of using a self-directed IRA to make investments is that one can generate tax-deferred or tax-free gains on investments one knows and understands.

For 2017, the following are some examples of types of investments that can be made with your Self-Directed IRA LLC:

  • Residential or commercial real estate
  • Domestic or Foreign real estate
  • Raw land
  • Foreclosure property
  • Mortgages
  • Mortgage pools
  • Deeds/Notes
  • Hard money lending
  • Private loans
  • Tax liens
  • Private businesses
  • Limited Liability Companies
  • Limited Liability Partnerships
  • Private placements
  • Precious metals and certain coins
  • Stocks, bonds, mutual funds
  • Foreign currencies
  • Bitcoins
  • Hedge Funds
  • Private Equity Funds

Using a Self-Directed IRA LLC to make investments offers the investor the ability to make traditional as well as non-traditional investments, such as real estate, in a tax-efficient manner.

Below are some of the most popular reasons to purchase non-traditional assets with your Self-Directed IRA LLC.

What Types of Alternate Investments Can You Make with a Self-Directed IRA?

Diversification

In general, most Americans have an enormous amount of financial exposure to the financial markets. Whether it is through retirement investments, such as IRAs or 401(k) plans, or personal savings, many of us have most of our savings connected in some way to the stock market. In fact, over 90% of retirement assets are invested in the financial markets. With over $20 trillion in retirement assets as of 2013, you can see the scope of that exposure. Investing in non-traditional assets, such as real estate, offers a form of investment diversification from the equity markets. In general, the more diversified your portfolio, the greater chance that your assets will offer lower correlation, meaning they are less likely to move in the same direction. However, diversification does not assure profit or protect against loss. The use of non-traditional asset classes can help protect your portfolio when the market is down and help protect you from losing more than the market.

Invest in Something You Understand

Many Americans became frustrated with the equity markets after the 2008 financial crisis. Thankfully, we have seen the financial markets rebound since then and have even seem some years of over 20% growth in the equity markets. Nevertheless, many Americans are still somewhat shell-shocked from the market swings and not 100% sure what exactly goes on in Wall Street and how it all works. Real estate, for comparison, is often a more comfortable investment for the lower and middle classes because they grew up exposed to it, whereas the upper classes often learned about Wall Street and other securities during their younger years and college days. Everyone has heard someone talk about the importance of owning a home or the amount of money that can be made by owning real estate. From Donald Trump to reality TV, real estate is fast becoming mainstream and one of the most trusted asset classes for Americans. It is, of course, not without risk, but many retirement investors feel more comfortable understanding the real estate market and buying and selling real estate than they do stocks.

Inflation Protection

Rising food and energy prices, coupled with high federal debt levels and low interest rates, have recently fueled new inflationary fears. As a result, some investors may be looking for ways to protect their portfolios from the ravages of inflation. It is a matter of guesswork to estimate whether these inflation risks are real, but for some retirement investors, protecting retirement assets from inflation is a big concern. Inflation can have a nasty impact on a retirement portfolio because it means a dollar today may not be worth a dollar tomorrow.  Inflation also increases the cost of things that are necessary for humans to live and enjoy life, such as bread, gas, shelter, clothing, medical services, etc., decreasing the value of money so that goods and services cost more. For example, if someone had an IRA worth $250,000 at a time of high inflation, that $250,000 will be worth significantly less or have significantly less buying power. This can mean the difference between retiring and working the rest of your life. Buying hard assets is seen as one way of protecting your assets against inflation. Many investors have long recognized that investing in commercial real estate can provide a natural protection against inflation, as rents tend to increase when prices do, acting as a hedge against inflation.

Hard Assets

Many non-traditional assets, such as real estate and precious metals are tangible hard assets that you can see and touch. With real estate, for example, you can drive by with your family, point out the window, and say “I own that”. For some, that’s important psychologically especially in times of financial instability, inflation, or political or global upheaval.

Tax Deferral

Tax deferral literally means that you are putting off paying tax. The most common types of tax-deferred investments include those in IRAs or Qualified Retirement Plans (i.e. 401(k)). Tax-deferral means that all income, gains, and earnings, such as interest, dividends, rental income, royalties or capital gains, will accumulate tax-free until the investor or IRA owner withdraws the funds and takes possession of them. As long as the funds remain in the retirement account, the funds will grow tax-free. This allows your retirement funds to grow at a much faster pace than if the funds were held personally, allowing you to build for your retirement more quickly. And, when you withdraw your IRA funds in the form of a distribution after you retire, you will likely be in a lower tax bracket and be able to keep more of what you accumulated. So, with using a Traditional IRA as a retirement savings vehicle, not only are you not paying taxes on the money you invested, you could be paying them at a lower rate when you finally do “take home” your money.

As long as the funds remain in the account, they grow without taxes eroding their value. This enables assets to accumulate at a faster pace, giving you an edge when saving for the long term. And, when you withdraw funds after you retire, you’ll likely be in a lower tax bracket and be able to keep more of what you’ve accumulated.

The concept of tax deferral is premised on the notion that all income and gains generated by the pre-tax retirement account investment would generally flow back into the retirement account tax-free. Instead of paying tax on the returns of a Self-Directed IRA investment, such as real estate, tax is paid only at a later date, leaving the investment to grow unhindered. For example, if an IRA investor invested $100,000 into a Self-Directed IRA LLC in 2017 and the account earns $10,000 in 2017, the investor would not owe tax on that $10,000 in 2017. Instead, the Self-Directed IRA investor would be required to pay the taxes when he or she withdraws the money from the IRA, which could be many years later. For example purposes, assuming the IRA investor mentioned above is in a 33% federal income tax bracket, she would have had to pay $3,333 in federal income taxes on the $10,000 earned on the IRA in 2017. That would have left $6,667 in the account. At a 8% annual return, those earnings would go on to produce $533.36 in 2017. However, because IRAs are tax deferred, the self-directed IRA investor is able to earn a return on the full $10,000 rather than the $533.36 she would have had if she had to pay taxes that year. At a 8% annual return, she’d earn $800 in 2017. The beauty of tax deferral is that the deferral compounds each year.

The following examples illustrate the powerful advantage of tax-deferred contributions and compounding through a Traditional IRA versus making contributions to a taxable account.

Example #1:

Joe is 40 years old and makes a $5,000 contribution to an IRA. Joe is in a 30% federal income tax bracket. Joe invests his IRA funds and receives a 6% average annual return.  When Joe retires at age 70, his $5,000 contribution would be worth $21, 609.71. If Joe invested the $5,000 personally, the account would only be worth $14,033.97.

Example #2:

Jane is 35 years old and makes a $5,000 contribution to an IRA. Assume Jane makes a $5,000 contribution to her IRA each year until she reaches the age of 70. Jane is in a 30% federal income tax bracket. Further assume that Jane was able to generate a 7% average annual return on her investment. When Jane retires at the age of 70, her IRA account would be worth  $792,950.21. If Jane made these $5,000 contributions though a taxable account, the account would only be worth $490,707.49.

Tax deferred investments though a self-directed IRA LLC generally help investors generate higher returns. That’s because the money that would normally be used for tax payments is instead allowed to remain in the account and earn a return.

Real Estate

The IRS permits using a Self-Directed IRA LLC to purchase real estate or raw land. Real estate is the most popular investment made with a Self-Directed IRA. Making a real estate investment is as simple as writing a check. Since you are the manager of your Self-Directed IRA LLC, you have the authority to make investment decisions on behalf of your IRA. One major advantage of purchasing real estate with a Self-Directed IRA is that all gains are tax-deferred until a distribution is taken (Traditional IRA distributions are not required until the IRA owner turns 70 1/2). In the case of a Self-Directed Roth IRA LLC, all gains are tax-free.

For example, if you purchased a piece of property with your Self-Directed IRA for $75,000 and later sold the property for $150,000, the $75,000 of gain would generally be tax-free. Whereas, if you purchased the property using personal funds (non-retirement funds), the gain would be subject to federal income taxes and in most cases state income tax.

Tax Liens

The IRS permits the purchase of tax liens and tax deeds with a Self-Directed IRA LLC. By using a Self-Directed IRA LLC to purchase tax-liens or tax deeds, your profits are tax-deferred back into your retirement account until a distribution is taken (Traditional IRA distributions are not required until the IRA owner turns 70 1/2). In the case of a Self-Directed Roth IRA LLC, all income and gains received would be tax-free.

More importantly, with a Self-Directed IRA LLC, you, as the manager of the IRA LLC, will have “checkbook control” over your IRA funds allowing you to make purchases on the spot without custodian consent. In other words, purchasing a tax-lien or tax deed is as easy as writing a check!

Loans & Notes

The IRS permits the use of IRA funds to make loans or purchase notes from third parties. By using a Self-Directed IRA LLC to make loans or purchase notes from third parties, all interest payments received would be tax-deferred until a distribution is taken (Traditional IRA distributions are not required until the IRA owner turns 70 1/2). In the case of a Self-Directed Roth IRA LLC, all interest received would be tax-free.

For example, if you used a Self-Directed IRA LLC to loan money to a friend, all interest received would flow back into your IRA tax-free. Whereas, if you lent your friend money from personal funds (non-retirement funds), the interest received would be subject to federal and in most cases state income tax.

Private Businesses

With a Self-Directed IRA LLC you are permitted to purchase an interest in a privately held business. The business can be established as any entity other than an S Corporation (i.e. limited liability company, C Corporation, partnership, etc.). When investing in a private business using IRA funds, it is important to keep in mind the “Disqualified Person” and “Prohibited Transaction” rules under IRC 4975 and the Unrelated Business Taxable Income rules under IRC 512. The retirement tax professionals at the IRA Financial Group will work with you to develop the most tax-efficient structure for using your IRA to invest in a private business.

Precious Metals & Coins

Internal Revenue Code Section 408(m) lists the type of precious metals and coins that are permitted investments using IRA funds:

  • One, one-half, one-quarter or one-tenth ounce U.S. gold coins (American Gold Eagle coins are the only gold coins specifically approved for IRAs. Other gold coins, to be eligible as IRA investments, must be at least .995 fine (99.5% pure) and be legal tender coins.
  • one ounce silver coins minted by the Treasury Department;
  • any coin issued under the laws of any state;
  • a platinum coin described in 31 USCS 5112(k) ; and
  • gold, silver, platinum or palladium bullion (other than bullion that is made into a coin) of a certain fineness that is in the physical possession of a trustee that meets the requirements for IRA trustees under Code Sec. 408(a).

By using a self-directed IRA to purchase IRS approved precious metals or coins, one is able to seemingly better diversify their retirement portfolio as well as generate tax-free gains on the sale of the metals or coins.

Internal Revenue Code Section 408(m) identifies the types of coins and precious metals that may be purchased using a Self-Directed IRA.

Section 408(m)(3)(A) lists the type of coins that may be purchased with retirement funds, which generally are American Eagle and U.S. state minted coins of a certain finesse.  The Technical and Miscellaneous Revenue Act of 1988 also allowed for the purchase of state minted coins. Whereas, IRC 408(m)(3)(B), refers to gold, silver, or palladium bullion of a certain finesse which must be held in the “physical possession” of a U.S. trustee, as described under subsection IRC 408(a), and which essentially refers to a bank, financial institution, depository, or approved trust company.

IRA Financial Group suggests that all clients seeking to purchase IRS approved coins or precious metals/bullion with their retirement account hold them in the physical possession of a trustee, such as a depository.  The IRS, as outlined in IRC 408(m)(3)(B) clearly does not allow any individual to hold IRS approved coins or precious metals/bullion personally, such as in their house. However, the Technical and Miscellaneous Revenue Act of 1988 Senate amendment seems to suggest that state minted coins can be held by a person other than the IRA holder, without referencing the term trustee, as defined in IRC Section 408.  Nevertheless, we recommend that IRS approved coins should not be held personally by the IRA holder and should be held at a trustee, as defined in IRC 408.

For Self-Directed IRA LLC clients seeking to hold IRS approved coins and precious metals at a bank safe deposit box, we believe that this position has some risk, as the IRS has not offered any formal guidance. In the case of a Self-Directed IRA, if the bank where the safe deposit box is not the trustee of the IRA that purchased the metals or coins, an argument can be made that the metals or coins would not satisfy the physical possession definition outlined in IRC section 408 since the bank could not serve as the IRA trustee.

In general, the rules surrounding the ownership and possession of IRS precious metals or coins are complicated.  Therefore, it is crucial that one works with a firm, such as IRA Financial Group, that has the expertise and resources to help one navigate the IRS rules without being preoccupied with selling you coins or precious metals.

The advantage of using a Self-Directed IRA LLC with “checkbook control” to purchase precious metals and/or coins is that their values generally keep up with, or exceed, inflation rates better than other investments. In addition, the metals and/or coins can be held in the name of the LLC at a financial organization (at any local bank) safe deposit box eliminating depository fees.

Foreign Currencies

The IRS does not prevent the use of IRA funds to purchase foreign currencies, including Iraqi Dinars. Many believe that foreign currency investments offer liquidity advantages to the stock market as well as significant investment opportunities.

Purchasing foreign currency, such as the Iraqi Dinar, with a Self-Directed IRA LLC is as easy as writing a check. As manager of the IRA LLC, you will have “checkbook control” over your IRA funds, providing you with the ability to make investments without requiring custodian consent. In addition, the foreign currency notes, including Iraqi Dinars, can be held in the name of the LLC at a financial organization (any local bank) safe deposit box eliminating depository fees.

By using a Self-Directed IRA LLC to purchase foreign currencies, such as the Iraqi Dinar, all foreign currency gains generated would be tax-deferred until a distribution is taken (Traditional IRA distributions are not required until the IRA owner turns 70 1/2). In the case of a Self-Directed Roth IRA LLC, all foreign currency gains would be tax-free.

Bitcoin

On March 25, 2014, the IRS issued Notice 2014-21, which, for the first time, set forth the IRS position on the taxation of bitcoin.  According to the IRS, “Virtual Currency is treated as property for U.S. federal tax purposes,” the notice said. “General tax principles that apply to property transactions apply to transactions using virtual currency.”  By treating bitcoins as property and not currency, the IRS is providing a potential boost to investors but it also imposing extensive record-keeping rules – and significant taxes – on its use. With IRA Financial Group’s Self-Directed IRA LLC bitcoin solution, traditional IRA or Roth IRA funds can be used to buy bitcoin without tax.

IRA Financial Group’s Self-Directed IRA LLC for bitcoin investors, is an IRS approved structure that allows one to use their retirement funds to make bitcoin and other investments tax-free and without custodian consent.   The Self-Directed IRA LLC involves the establishment of a limited liability company (“LLC”) that is owned by the IRA (care of the IRA custodian) and managed by the IRA holder or any third-party. As manager of the IRA LLC, the IRA owner will have control over the IRA assets to make traditional as well as non-traditional investments, such as real estate.

Using IRA Financial Group’s self directed IRA LLC with “Checkbook Control” solution to make bitcoin investments offers a number of very interesting investment opportunities, including the ability to diversify one’s retirement portfolio with real estate, precious metals, and other alternative investment options.

Stocks, Bonds, Mutual Funds, CDs

In addition to non-traditional investments such as real estate, a Self-Directed IRA LLC may purchase stock, bonds, mutual funds, and CDs. The advantage of using a Self-Directed IRA LLC with “Checkbook Control” is that you are not limited to just making these types of investments. With a Self-Directed IRA LLC with “checkbook control” you can open a stock trading account with any financial institution as well as purchase real estate, buy tax liens, or lend money to a third-party. Your investment opportunities are endless!

For more information about alternate investments in an IRA, please contact us @ 800.472.4646.

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Feb 27

Learn How to Use ROBS with Your IRA Funds to Start A Business

The Business Acquisition & Compliance Solution Structure (BACSS), also known as the “Rollover Business Start-Up” (“ROBS”) Solution, is an IRS and ERISA approved structure that allows an individual to use retirement funds, such as an IRA or 401(k), to purchase a new or existing business or franchise tax-free and penalty-free.

The ROBS arrangement typically involves rolling over a prior IRA account into a newly established 401(k) plan, which a start-up C Corporation business sponsored, and then investing the rollover funds in the stock of the new C Corporation.

What is the Difference between using a Self-Directed IRA Vs. ROBS structure to buy a business?

At first glance, using a Self-Directed IRA LLC to purchase stock in a corporation would seem to share many similarities with the ROBS structure.

Learn How to Use ROBS with Your IRA Funds to Start A BusinessWith IRA Financial Group’s ROBS transactions, the structure typically involves the following sequential steps: (i) an entrepreneur or existing business owner establishes a new C Corporation; (ii) the C Corporation adopts a prototype 401(k) plan that specifically permits plan participants to direct the investment of their plan accounts into a selection of investment options, including employer stock, also known as “qualifying employer securities.”; (iii) the entrepreneur elects to participate in the new 401(k) plan and, as permitted by the plan, directs a rollover or trustee-to-trustee transfer of retirement funds from another qualified retirement plan into the newly adopted 401(k) plan; (iv) the entrepreneur then directs the investment of his or her 401(k) plan account to purchase the C Corporation’s newly issued stock at fair market value (i.e., the amount that the entrepreneur wishes to invest in the new business); and finally (v) the C Corporation utilizes the proceeds from the sale of stock to purchase an existing business or to begin a new venture.

With IRA Financial Group’s ROBS strategy, the newly formed business will also be able to borrow from third parties, pay salaries to employees (including shareholders/plan participants), and engage in other routine business transactions with disqualified persons. Commonly, a corporate officer or shareholder will make or guarantee loans to the business.

With a Self-Directed IRA LLC, an entrepreneur could use retirement funds to purchase business assets like with the ROBS strategy. However, that individual would not be able to be actively involved in the business, earn a salary, or even personally guarantee a business loan.

The recent U.S. Tax Court case Ellis v. Comm’r of Internal Revenue, No. 14-1310 (8th Cir. 2015) highlights the risk and limitations involved when using a Self-Directed IRA to purchase business assets. In the Ellis case, the taxpayers used IRA funds to invest in a corporation that ultimately purchased business assets. Because Mr. Ellis used an IRA and not a 401(k) Plan to purchase the C Corporation stock, Mr. Ellis was not able to earn a salary or personally guarantee a business loan, which ultimately was the cause of the IRS prohibited transaction rule violation.

If Mr. Ellis had used IRA Financial Group’s ROBS strategy, he would have been able to purchase business assets with retirement funds, earn a salary from the business, as well as personally guarantee the business loan without triggering the IRS prohibited transaction rules.

Legal Foundation for the ROBS Solution

An individual retirement account investor is able to use retirement funds to invest in an active trade or business with tax or penalty because the ROBS solution qualifies for a special exemption set forth under IRC 4975(d) to certain prohibited transaction rules. The exemption to the prohibited transaction rules under IRC 4975(d) is centered around ERISA Section 408(e). It is IRC Section 4975(d) and ERISA Section 408(e) which shields employers from scrutiny of routine (non-abusive) corporate transactions by the plan sponsor and other “disqualified persons,” which might otherwise constitute technical violations of the prohibited transaction rules (due to the employer-sponsored retirement plan’s ownership of employer securities). If the plan sponsor and other fiduciaries’ routine corporate transactions did not fall within the purview of ERISA Section 408(e), the prohibited transaction rules would needlessly prohibit a myriad of legitimate business transactions and would ultimately nullify the exemption that Congress intended to provide. To accomplish its intended effect, ERISA Section 408(e) must be read to exempt the natural and necessary commercial consequences of owning corporate stock, rather than just the stock purchase or divestiture.

Important tax and economic policy considerations also compel a different result for 401(k) plans than IRAs. Congress specifically intended to encourage 401(k) plans to invest in employer securities, within certain limits. The opportunity to invest in employer securities through retirement plans benefits employers and employees alike by aligning their economic interests.

Outside the context of ROBS arrangements, many 401(k) plans permit participants to invest in employer stock. A number of large 401(k) plans, including plans sponsored by Apple and Pepsi, include substantial allocations of employer stock.

To learn more about the benefits of the ROBS (Rollover Business Startup) strategy, please contact a retirement tax expert at 800-472-0646.

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Feb 20

Benefits of Using Your IRA to Fund a Business with ROBS

When it comes to using retirement funds to buy or finance a business that you or another “disqualified person” will be involved in personally, there is only one legal way to do it and that is through the Business Acquisition Solution, also known as a Rollover Business Start-Up (ROBS). The ROBS solution takes advantage of an exception in the tax code under Internal Revenue Code (“IRC”) Section 4975(d) that allows one to use 401(k) plan funds to buy stock in a “C” Corporation, which is known as “qualifying employer securities”. The exception to the IRS prohibited transaction rules found in IRC 4975(d) requires that a 401(k) plan buy “qualifying employer securities”, which is defined as stock of a “C” Corporation. This is the reason why one cannot use a self-directed IRA LLC to invest in a business the IRA holder or a disqualified person will be personally involved in or why a 401(k) plan cannot invest in an LLC in which the plan participant or disqualified person will be involved in without triggering the prohibited transaction rules.

So How Does the ROBS Solution Work?

The structure typically involves the following sequential steps:

1. An entrepreneur or existing business owner establishes a new C Corporation;

2. The C Corporation adopts a prototype 401(k) plan that specifically permits plan participants to direct the investment of their plan accounts into a selection of investment options, including employer stock, also known as “qualifying employer securities.”

3. The entrepreneur elects to participate in the new 401(k) plan and, as permitted by the plan, directs a rollover or trustee-to-trustee transfer of retirement funds from another qualified retirement plan into the newly adopted 401(k) plan;

4. The entrepreneur then directs the investment of his or her 401(k) plan account to purchase the C Corporation’s newly issued stock at fair market value ( i.e., the amount that the entrepreneur wishes to invest in the new business); and finally

5.The C Corporation utilizes the proceeds from the sale of stock to purchase an existing business or to begin a new venture.

What Are Some of the Advantages of the ROBS Solution?

  • Save Money: The primary advantage of establishing a ROBS solution is to be able to use your retirement funds to invest in a business you will be personally involved in without having to pay tax the retirement funds you wish to use as a distribution to tax and potentially penalty. By being able to invest the retirement funds into the business without having to take a taxable distribution and a 10% early distribution penalty if under the age of 591/2, using a ROBS solution could save someone close to 45% of the distribution amount. For example, if someone under the age of 591/2 was looking to use $100,000 of retirement funds to fund a business and ended up taking a taxable distribution of that amount, that individual would likely have to pay approximately 45% of the 100,000 or $45,000 in tax to the IRS when declaring the distribution on their tax return. The tax rate could be lower if the individual was in a lower income tax bracket or the retirement funds needed were insignificant, but using a ROBS solution would save having to pay tax and potentially a 10% penalty on that amount.
  • Invest in Yourself: The ROBS solution allows one to invest their retirement funds in a business that will be actively run by the retirement account holder. As a result, one is essentially investing their retirement funds in themselves rather than on Wall Street. Of course, not all businesses are successful. According to Bloomberg, close to 80% of new businesses fail in the first 18 months. Hence, investing your hard earned retirement funds in a new business is certainly a risk. However, it is a risk that you are legally entitled to take as per the Internal Revenue Code. Using retirement funds to invest in your business is not for everyone, but for those entrepreneurs that would rather invest in themselves than Wall Street, the ROBS solution is an option.
  • Diversification: There is a growing sentiment among financial advisors, especially after the 2008 financial crisis, that in order to protect your retirement funds from a market downturn, your retirement funds should be well diversified. One can generally not eliminate investment risk completely, but one can manage your level of risk. Every investment has some amount of risk, however, having your retirement funds invested in different types of investments, such as stocks, real estate, and even private businesses, can be a way of diversifying your retirement portfolio and better protecting your retirement funds. Also, it is believed that diversification can enable a retirement portfolio to grow both when markets boom and returns crumble in one sector One should certainly work with a financial planner and tax professional when looking at investment options, especially when it comes to using retirement funds to buy a business.
  • Earn a Salary: In order for one to be a participant of a 401(k) Plan, one needs to be an employee of the business, which adopted the plan. This is the reason why if you own Apple or IBM stock but don’t work at those companies, you cannot participate in their company 401(k) plans. Hence, in order to be eligible to participate in the corporation 401(k) plan you must become a W-2 employee of the C Corporation. For many entrepreneurs the ability to earn a salary and be actively involved in the business is the reason they are using a ROBS solution versus using a self-directed IRA.
  • Benefit from having a 401(k) Retirement Plan: One of the best ways for you to save toward your own retirement and ensure your future security is through an employer-sponsored 401(k) plan. Below are some of the advantages of offering and participating ion a 401(k) Plan.
  • Matching Contributions Many employers will match a portion of your savings: It’s like passing up free money if you don’t participate. A safe harbor 401(k) Plan, which is a popular type of 401(k) plan for small businesses, offer employees who participate in the plan a 3% matching contribution made by the employer. Thus, for example, if the employee earns $40,000 in salary during the year and contributes 3% of the salary of $1200 to the 401(k) plan, the employer would contribute an additional $1200 (3% of the salary) to the individual 401(k) plan account.
  • Retaining employees: with most businesses offering their employees retirement benefits, it is worthwhile for small businesses to compete for talented workers by implementing 401(k) benefits. Offering 401(k) plan benefits is a great way to retain key employees. In general, when potential hires are considering multiple job offers, they’ll compare those offers based on corporate culture, growth opportunities, and benefits packages.
  • Easy Administration: 401(k) Plan administration is now easier and more cost-effective than ever with Internet options available to small employers. In addition, IRA Financial Group offers recordkeeping and third-party administration services for your plan allowing you to spend more time focusing on your business and less on your plan.
  • You Can Participate As Well: You are eligible to participate in the company 401(k) plan if you are an owner or an employee of the company that sponsor’s the 401(k) plan. Current regulations allow plan participants to contribute up to $18,000 ($24,000 if over the age of 50) of their income on a pre-tax basis each year. That means that in addition to your tax savings for offering the plan and providing matching contributions, you’ll receive yet another tax savings for participating in the plan. This savings can be substantial – an owner in the 35% tax bracket who made the maximum contribution would have saved approximately $6,500 in taxes in 2016.

To learn more about the benefits of the ROBS strategy, please contact a retirement tax expert at 800-472-0646.
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Nov 10

Trump Victory and Prospect of Reduced Corporate Tax Rates Expected To Increase Popularity of Rollover Business Start-Up Solution

Reduced corporate tax rates will help thousands of Americans use retirement funds tax-free to fund a business via ROBS

IRA Financial Group, a provider of Rollover Business Startup Solution (“ROBS”) solutions, expects to see a surge in the popularity of the ROBS solution based on Donald Trump’s Presidential Election victory. Mr. Trump’s tax plan has called for a reduction of tax rates on corporations.

The rollover business start-up (“ROBS”) arrangements typically involves rolling over a prior IRA or 401(k) plan account into a newly established 401(k) plan, which a start-up C Corporation business sponsored, and then investing the rollover 401(k) Plan funds in the stock of the new C Corporation. The funds are then deposited in the C Corporation bank account and are available for use for business purposes. The ROBS solution is a tax efficient way for any entrepreneur looking to use IRA fund to buy a business or franchise without incurring any tax or penalty from an IRA distribution. “With the expectation of reduced corporate tax rates, operating a business via a C Corporation will become more tax efficient and should increase the popularity of the ROBS solution with entrepreneurs looking to use retirement funds to buy a business,” stated Adam Bergman, a partner with the IRA Financial Group.Trump Victory and Prospect of Reduced Corporate Tax Rates Expected To Increase Popularity of Rollover Business Start-Up Solution

The IRA Financial Group was founded by a group of top law firm tax and ERISA lawyers who have worked at some of the largest law firms in the United States, such as White & Case LLP, Dewey & LeBoeuf LLP, and Thelen LLP.

IRA Financial Group has helped thousands of clients take back control over their retirement funds while gaining the ability to invest in almost any type of investment, including real estate without custodian consent.

IRA Financial Group proudly announces the latest book titled written by tax partner Adam Bergman, Turning Retirement Funds into Start-Up Dreams – financing and retirement funding options for your start-up business is now available for purchase on Amazon.

To learn more about the IRA Financial Group please visit our website at http://www.irafinancialgroup.com or call 800-472-0646.

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