CLA Connect Open Forum

Topic: 401k roll over for purchase

1.  401k roll over for purchase

Posted 11 days ago
Has anyone used their 401k to roll over to buy their business. I am going to be doing this and am interested in any information you may have. I have talked with Guidant Financial so far.

thanks,

Hilary

------------------------------
Hilary Hoyt
Potential Investor
Medford MA
------------------------------


2.  RE: 401k roll over for purchase

Posted 11 days ago
You will be hit with a Tax penalty of 30% of that money you're using to purchase the business, unless you are over 59 1/2.

------------------------------
Simon Elwardany
Mission Coin-op Laundry
Pomona CA
------------------------------



3.  RE: 401k roll over for purchase

Posted 11 days ago
401K rollover is not withdraw or loan from account, so no penalty.
You can Google how to proper set up new company with 401K account, then transfer to new company (which belong to you) 401K.

------------------------------
Phu Tran
Store Owner/ Employee
Garland TX
------------------------------



4.  RE: 401k roll over for purchase

Posted 11 days ago
You are right.
How can you do a rollover to buy a business with your 401k?? Not sure if that's possible, that's the reason why i thought question was to pull money out of 401k.

------------------------------
Simon Elwardany
Mission Coin-op Laundry
Pomona CA
------------------------------



5.  RE: 401k roll over for purchase

Posted 11 days ago
You can use a 401k if it is from a business that you are no longer employed at. It rolls over to a new 401k that is set up as stock in your company. What I would like to know is if anyone has done it, how it worked out for them and who they used.

------------------------------
Hilary Hoyt
Potential Investor
Medford MA
------------------------------



6.  RE: 401k roll over for purchase

Posted 11 days ago
Yes, you can use a 401K from a previous employer or an IRA to start a new business. It's called a ROBS. There are no tax penalties or implications.  Companies like FranFund do it for a one time fee of $4,750 and an ongoing monthly service charge of $120.  For the fee of $120, they process all the paperwork to ensure that you remain in compliance with all the tax laws.

Outside of the fees, the downside used to be that you can only file as a C-Corp so your taxes may be higher. That will be a non issue if the tax reforms currently on the table pass.

------------------------------
JC
------------------------------



7.  RE: 401k roll over for purchase

Posted 11 days ago
Before  you pull the trigger, you should talk with your accountant and or estate / tax attorney about this transaction.

------------------------------
Les Monthei
Potential Investor
Redding CA
------------------------------



8.  RE: 401k roll over for purchase

Posted 10 days ago
JC,

All this fees to use your own money in the 401k. So we are talking about 6k in your first year in fees and then an on going of $1440 every year after.

------------------------------
Simon Elwardany
Mission Coin-op Laundry
Pomona CA
------------------------------



9.  RE: 401k roll over for purchase

Posted 10 days ago
I would not use 401k money... If anything goes drastically wrong in the business and you just took out loans you would have options like bankruptcy and what not and still have your retirement... you take out loans on retirement or roll it over instead of just taking out loans on the new laundry you risk everything on the front and back side if it goes bad.

------------------------------
Ross Dodds
Wash On Western & WeHo wash
Los Angeles, CA
------------------------------



10.  RE: 401k roll over for purchase

Posted 10 days ago
Things to consider:

- you must be a "C" corp, added complexity vs. LLC
- If you have other companies, employees from those companies may be eligible to participate in this 401k plan
- If you have other companies they can't interact with this laundromat (i.e. pay rent to your real estate holding company)
- The only way to get money out of a "C" corp is via payroll, now you have payroll withholding taxes to deal with...(technically you could declare a dividend)
- There may be situations where you are required to offer stock to your employees. Do you really want the cleaning lady owning a part of your business?
- The Guidant process is you pay $4995 up front before you talk to an Erisa attorney they arrange for you. It would be best if you talked with a qualified ERISA attorney with a good CPA about your situation before paid any fees to Guidant or anyone else.
To summarize, this process works but may not be the best option for everyone. In my humble opinion it would be a last resort.

------------------------------
Todd Boop
Multi-Store Owner
Millmont PA
------------------------------



11.  RE: 401k roll over for purchase

Posted 10 days ago
i have a 401k at my employer. i can borrow up to  50% of the total value and repay my account up to 60 month term at 2 or 3 points over prime. this way, you pay no taxes and it's not a distribution therefore no penalty. do you have the option of borroiwing from your 401k/

------------------------------
ed clem
Potential Investor
Daytona Beach FL
------------------------------



12.  RE: 401k roll over for purchase

Posted 5 days ago
Simple you set up a profit and trust transfer 401k funds to new trust and the trust gives you the funds necessary to buy laundry . No penalties you pay back the trust

------------------------------
Robin Salmaggi
Store Owner/ Employee
New York NY
------------------------------



13.  RE: 401k roll over for purchase

Posted 10 days ago
Hilary,

The Mat business can be very competitive and riskier than many people perceive. Especially for a newbie.
Why risk your retirement money?

------------------------------
Paulie B
Store Owner/ Employee
Mr Machine
New York City NY
------------------------------



14.  RE: 401k roll over for purchase

Posted 10 days ago
I wasn't recommending it. I was simply providing information surrounding the fact that it can be done without a penalty.

As far as fees are concerned, if you secure a SBA loan, the fees are pretty high, and you will have interest expense.  Depending on the size of the loan, you may pay more interest and fees with a SBA loan.

Like I said, I'm not recommending it, but simply pointing it out as an option in response to the question.

Do your homework and find out what works best for you.

------------------------------
JC
------------------------------



15.  RE: 401k roll over for purchase

Posted 10 days ago

Hi Hilary,

Yes, you can definitely do it.  You need to be organized and have discipline.  If you have those qualities I suggest a self-directed IRA.

I set up mine back in 2011, purchased multiple multi-family properties, have filed annual tax returns and have little or no issues.

These folks help me set it up.


Safeguard Advisors
https://ira123.com/

The trust company where I hold my assets is:
https://www.iraservicestrust.com

You set up a LLC, move or buy the assets under that LLC and you are the sole manager.  You can buy real estate, laundromats, businesses.  They will educate you on what a prohibited transaction is.  Heed that advice and follow it and you will be fine.  Read, educate yourself and become the expert of your self-directed IRA.

I got fed up with the stock market and have never looked back.  There are many nay-sayers so take all that with a grain of salt.

Good luck!

Mike N





------------------------------
Michael N
Store Owner/ Employee
------------------------------



16.  RE: 401k roll over for purchase

Posted 10 days ago
Michael,

What are there fees??

------------------------------
Simon Elwardany
Mission Coin-op Laundry
Pomona CA
------------------------------



17.  RE: 401k roll over for purchase

Posted 10 days ago
I purchased my laundromat with funds from my self directed 401K, which I set up with rollover 401k funds when I left my prior employer.  Currently, you will be required to set up a C corp to purchase the laundromat - who knows when tax reform might get done.  Like Michael N, I have also used my 401k to invest in real estate.

It is a lot of paperwork to get set up and deal with tax reporting for the C corp, but I've found it to be a minimal burden going forward.  For me, the laundromat is only one portion of my retirement investment strategy.  There is some risk that I could lose money on the laundromat, but I've offset that risk with other investments, and I would prefer to lose money from my 401k than risk bankruptcy.  I'm 8-9 years away from retirement.

I used My Solo 401K Financial to set it up. www.mysolo401k.net.  I believe their set up fees and ongoing fees are the lowest, and they have a good reputation.

Good luck!

------------------------------
E Prescott
Store Owner/ Employee
THE WASH HOUSE
Oakland CA
info@thewashhouse98th.com
------------------------------



18.  RE: 401k roll over for purchase

Posted 10 days ago
Hilary...

Take a look at Benetrends. They offer a system (Rainmaker Plan) that uses 401k to fund business. Can be found online.

People use 401Ks and self-directed IRAs all the time to buy income producing properties or start businesses (both domestic or foreign). However, in order to decrease risk, usually a person has a good grounding/expertise in a particular business BEFORE committing retirement funds.

And there are lots of rules. Compliance is THE key factor in keeping your business/retirement funds tax sheltered.

There are a few owners occasionally visiting this board who have successfully done what you want to do.

------------------------------
Ann Whitehead
Store Owner/ Employee
Bubbles Laundry
Everett WA
------------------------------



19.  RE: 401k roll over for purchase

Posted 7 days ago
Well definitely promotes having some serious skin in the game.

 I think the better question is how many people / investors have failed with that plan execution?

------------------------------
Juan
Store Owner/ Employee
Cocoa FL
------------------------------



20.  RE: 401k roll over for purchase

Posted 7 days ago
I used this process as well to purchase my laundromat.  If you are looking at the laundromat from strictly an investment perspective as part of a portfolio, I think there are much better investments.  If you think you can get 8-12% from stocks with virtually no work, I think a laundromat would have to be in the 15-30% range with no work to be an equivalent return for risk. This would be hard to do unless you invest your time but then your realized return goes down.  I think as most have said, the laundromat will take up more time than you might think particularly the first few years.

------------------------------
Jesse Gabrano
Store Owner/ Employee
First Laundromat
Springfield VA
------------------------------



21.  RE: 401k roll over for purchase

Posted 7 days ago
I did just this for my Lmat (with property).  I used Catchfire Funding.  Todd does a nice job summarizing the pros/cons, and I would make sure you understand them inside and out.  For me, it has worked out incredibly well, and not sure I would/could have done it another way.  I feel much more diversified and love the cash flow, but I guess it all comes down to buying the RIGHT business.  I should add I had owned a successful small business previously, so my success isn't tied to how I funded it but my confidence in running a business, any business.

------------------------------
Ronald Hogan
Store Owner/ Employee
Shoreside Laundromat
Revere MA
------------------------------