Is your 401K becoming a 101K?
As a Concierge Business Broker I hear from clients saying "I don't have enough cash to invest to buy a business in Florida".
I ask if they have a 401K and if they do we can usually find a business that works for them. I work with Guidant Financial to handle the details which are explained below:
The Rollovers for Business Start-ups structure must be formed correctly in order to qualify under IRS code and generally involves four or five steps. Although complex, these steps can usually be completed in less than three weeks. Here’s how it works:
1. The rollover provider creates a private C corporation for the client.
2. The provider then creates a new qualified retirement plan — most commonly a 401(k) — for the corporation.
3. Funds from the client’s existing retirement account are rolled into the new retirement plan without triggering a taxable distribution.
4. The new plan then purchases stock in the C corporation.
5. The corporation, in turn, uses the investment proceeds to acquire a small business or franchise, and the 401(k) becomes one of the shareholders in the corporation.
6. The new business now is cash-rich and debt-free.
Now, let’s look at a real-world example: say an aspiring entrepreneur wants to start a new business or purchase a franchise. After reviewing her financing options, she decides the money currently sitting in her retirement account is the perfect way to generate needed seed capital.
Using the help of a company like Guidant, she forms a C corporation. After incorporation, her new business adopts a 401(k) plan that explicitly allows its trustee(s) to acquire and hold employer stock in a private business. The plan allows eligible employees to roll funds over from their eligible retirement accounts into the new 401(k) plan.
Once retirement funds are rolled over into the company 401(k) plan, the plan invests up to 100 percent of those funds (assuming the terms of the plan so allow) into the purchase of company stock. In effect, the money in the owner’s 401(k) plan is transferred to the corporation in exchange for most or all of the company’s stock.
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Buy or Sell a Business in Florida
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