BUYING A FRANCHISE WITH RETIREMENT MONEY FROM 401K OR IRA
I have a client who is working with BeneTrends Inc, a third party administrator, who has a program called the Rainmaker Plan. This plan works as follows:
1) A C-Corporation is created for a new company.
2) The C-Corporation creates a new retirement plan.
3) The funds from your existing retirement plan are rolled over into the corporation’s new retirement plan.
4) The new retirement plan purchases stock in the newly-created C-Corporation with the IRA or 401k money.
Has anyone had experience with BeneTrends Inc or another party that sells this service to clients.
The company claims that this works and they have done over 4,000 plans. They have also received favorable IRS determinations.
Your thoughts and ideas are appreciated. Looks like a bad situation to me.
Allen
Permalink Submitted by Mark Stevens on Tue, 2007-10-30 14:19
Allen
I have spent the last hour googling and reading to see what the downside to this type of transaction is. Have you learned anything?
I have a client that is being courted by Guidant. I found alot of mentions of Guidant when I googled and plan to speak to the rep at some point.
I have two main questions. 1- How gray is it from the tax and DOL side of the house? 2- what are the tax consequences upon sale of business and for that matter what does this transaction do to complicate the sale- not to mention if it were to be passed intrafamily on to next generation. .
Permalink Submitted by BruceM on Wed, 2007-10-31 00:36
What is the purpose of the C-Corp? I do not pretend to be an expert on this, but I have read that the IRS may disqualify…or ‘pierce the vail’ of a C-Corp created soley for tax evasion resons. Would setting up a C-Corp strictly as a means of providing a market for the corporations stock with no other business reason pass the test of being a business entity?
And I suspect this is being done to essentially make tax and penalty free withdrawals from an IRA? If so, somehow, I just can’t see the IRS that I know allowing this to continue for very long. And finally, the cost of setting all of this up? Establishing a, I presume, QRP, paying for an independent appraisal required to determine the share value of the private company?? And how would future plan MRD’s be handled?
I’m not saying this is all a sham…but it seems to have that distinctive sound. And I think the Rain-making is FBO BeneTrends Inc.
BruceM
Permalink Submitted by [email protected] on Wed, 2007-10-31 11:56
Not an expert either, but I have a pension plan I manage for a company that was established in this way. The C-corp isn’t to evade taxes – a legitimate business was established, so it’s not a sham corporation.