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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121572  
Subject: Re: IRA to Fund New Business Date: 3/13/2013 1:36 PM
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TMFBreakerRob: "Update:

My franchisor sent me to talk with a company called "FranFund".

Bottom line: There is a process to achieve what I'm looking for.... for a fee and it is known as a "Rollover for business start-up". FranFund performs the service of running through these steps:

Step 1: Get incorporated...must be a C-corp.

Step 2: Form a 401k sponsored by the C-Corp. Need a third party administrator, in this case...FranFund uses Merrill Lynch as the custodian.

Step 3: I would be a participant in the 401k and rollover money (for the business) from my another IRA account(s).

Step 4: The C-corp would issue stock and this stock would be purchased within the 401k."


From the last cited URL in your post:

Under this funding arrangement, business owners set up a C corporation for their new business. The C corporation establishes a new retirement plan. Then the individual's current retirement funds are rolled over into the C corporation's new plan. Last, the new retirement plan invests in the stock of the C corporation.

Not that I am an expert, but this process is still unclear to me.

First step in each instance is to form a C-corp. Who is the iniital sharehold when the C-corp is formed?

If the C-corp is to establish a 401-k, then it needs to be initially capitalized and officers appointed. Who is providing the initial capital and naming the original offices?

To rollover funds, you would need to be the employee of the new C-corp because only current employees can rollover funds.

If the C-corp is issuing more stock, then the initial shareholder is being diluted. In addition, if you are the initial shareholder and an officer of the company, it would appear to me that this is transaction with a related party, which would be a prohibited transaction as a result.

For this to work, there must be more going on or some other step(s) that is/re not fully disclosed.

I also note the old adage about having all one's eggs in the same basket.

Regards, JAFO
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