Both of these companies have an interesting way of using retirement funds to buy a business that you can be directly involved with, unlike a self-directed IRA or 401K.
Basically they create a C-Corp, start a 401K for the C-corp, you rollover your retirement funds into the C-corp 401K and the 401k buys the C-corp stock and then the C-corp has funds to use as it pleases. See their web sites for better info.
I’m looking to see if anyone has done this or know of someone that has?
I talked to my CPA and he thinks it’s an interesting concept and is looking at it more to provide me with some guidance to its legitimacy.
If you are considering the ROBS act take a look at SD Cooper. I have no experience with them other than a lengthy conversation with Steve (owner) who is upfront about the 1974 ERISA law and what the intent was when drafted. He is also upfront that the fee you pay him to set up the necessary Profit-Sharing Plan (not a 401(k)) can be done on your own with an attorney who you are going to need anyhow but most regular attorneys don’t practice ERISA law as that is a specialty. I was ready to pull the trigger with them on a park but the deal fell apart at the 11th hour. I’m back in the shopping mode. The down payment on whatever deal we go with will determine if we’ll go the ROBS way. Also, I’ve had a couple of thousand dollars worth of ERISA attorney expenses all advising me against even getting involved with ROBS because it’s an untested grey area and involved the IRS as well as the DOL. Read the SD Cooper website and you’ll get a completely different picture than Guidant has. This is in no way an endorsement for or against the companies mentioned or the utilization of ROBS as a financing method.
I did this a couple of years ago with a Tax Attorney based in Chicago. His name is Lee Jennings with Dana Consulting Group. Phone is 312-332-7733. Website is www.danaconsulting.com.
Lee normally does these for individuals who leave their company, want to take their pension, 401K and/or IRA and use that money to start a business. My situation was the first time he set this up for real estate transactions.
Before I purchased my first park with this set up, I was able to get Lee on a conference call with John Hyre. John was able to make
recommendations that will greatly reduce my tax exposure when I sell the park.
I wanted to give an update on this. I used Benetrends and bought a park with their Rainmaker product. That was 3 years ago. This next tax year I will have to put money info my retirement, but its only 5% of profits or so.
The up front cost was about $5000. Considering the work they do to get things set up properly, I don’t think that is to bad and it could save $100,0000’s to $1M’s when you sell depending on the deal.
They have a monthly expense that covers annual reporting requirements, but that isn’t a large amount.
The only down fall is the unknown. Because it’s a gray area to the IRS, things could change. If it does, how will that affect the corp? Some states have additional reporting because it’s a C-corp vs a LLC, but again the expense isn’t much.
Is your C-corp paying taxes at the corporate federal rate and then you are taking your dividends and paying personal tax on that income also? Do you have income (or depreciation covers your income so you have losses but positive cash flow?)
Edit: Oh - maybe the dividend income is tax free because it accrues to a tax-free ERISA ? Is that the idea?
As of yet, no taxes. But it will be at the fed corp rate. Using this system to buy a park has its benefits when you sell because the retirement fund owns the stock so when the park is sold, the retirement fund sells the stock back to the corp and its not taxed. I can’t go into the details because its complicated. If there is interest, call benetrends and they will explain it.
I take a pay check as an employee of the c-corp.
The only ways to get out of this is to either sell the property and close the corp or buy the stock from the retirement fund.
I don’t know this for sure, so don’t quote me, but another good side to this may be if you want to sell and buy another park, maybe you don’t have to do a 1031 and be tied to the very tight timeline to delay capital gains. This would be another benetrends question.