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The End of Small Business Financing with IRA and 401k Funds? (Part 3) October 21, 2009

Posted by Jeff Nabers in : Self Directed IRA Solo 401k , 27comments

mystery

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 Solo 401k , add a comment

dc_jefferson_memorial

[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:

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 Solo 401k , 9comments

road_block

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:

  1. Forms a C corporation.
  2. Uses the new C corporation to adopt a 401(k) or profit-sharing plan.
  3. Performs a rollover from existing retirement funds (IRA, 401k, etc) into the new 401(k) plan.
  4. Directs the new 401(k) plan to invest into the new C corporation by purchasing shares of stock.
  5. 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 Top 5 Investing Myths of 2008 January 5, 2009

Posted by Jeff Nabers in : Money, Personal Enjoyment, Personal Productivity, Self Directed IRA Solo 401k, real estate , add a comment

calendar

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…)