Buying A Business Or Franchise With A Rollovers As Business Startups Is A Big No-No According To Nabers December 17, 2009
Posted by admin2 in : Rollovers As Business Startups , trackbackThinking about rolling over your 401k to purchase a new franchise or a personal business venture, then you might want to think again?
Authors Jeff Nabers and Phoebe Chongchua (Five Steps to Freedom: How to Cut Your Dependence on Institutions and Escape Financial Slavery) suggest that using an investment structure known as Rollovers As Business Startups (ROBS) to fund a business startup or franchise is an IRA prohibited transaction.
Jeff Nabers is CEO of Nabers Group, an unconventional planning company in Denver, Colorado. His research and personal dealings with the Department of Labor compel him to recommend against the Rollovers as Business Startups strategy.
Nabers Group can be reached at (877) 903-2220. Watch more Nabers videos.
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It is not prohibited as long as you do it right. It’s actually pretty simple. Create a c coporation, have the corporation hire you and offer a 401k with company stock as an option and roll your 401k over to the new company. Totally legal and legitimate. You are an employee (and likely an officer) of the new company and a shareholder. The company is partly (or wholly) capitalized by your purchase of stock. Only mistake I see is people who don’t know what they are doing using LLCs. That doesn’t work in this case because it is a disregarded entity from the IRS perspective.
I didn’t read your detailed blog before I posted. I guess you’ve dug into this pretty deep. I would still be pretty surprised to see any action on this but caution does seem to be in order.