When securing a bank loan to fund a business idea wasn?t possible, Tina Dungy turned to her 401(k). Rather than pay the IRS penalties for cashing out while in her 40s, the former HR and benefits executive worked with financing company Benetrends, which helps entrepreneurs roll their retirement funds into a new business, tax-deferred and penalty-free.
In August 2008, Benetrends created a C Corporation and a new retirement plan for a struggling locksmith franchise Dungy hoped to purchase. Benetrends then rolled $400,000 from her and her husband?s retirement funds inro rhat new plan. Dungy aquired Pop-A-Lock Atlanta that October, essentially by purchasing stock in the newly created corporation.
Dungy and her husband immediately poured another $200,000 in non-retirement savings into the business, buing new equipment and vehicles, retraining employees and rebreeding the company.
The gamble paid off. Four years later, Dungy has more than quadrupled revenue and received regional Better Business Bureau awards for customer service and marketplace ethics. We asked her to unlock the secret of her financing tactics.-Michelle Goodman
WHY DID YOU CHOOSE THIS ROUTE?
I tried to get financing the traditional way. That was when the banks were not lending money. Although I had stellar credit, I was buying a business that was in decline- a business that has in five years gone from a high of $1 million in annual revenue to less than $400,000. So it just wasn?t attractive to banks.
DID YOU AND YOUR HUSBAND COMPLETELY EMPTY YOUR 401(K)S?
No, we didn?t. we had quite a bit of money in there. my husband is such a believer in maximizing your 401(k), and he?s very risk-averse. it took two months to convince him to invest in the company; it was like presenting to a bank.
HOW DOES THIS TYPE OF FINANCING WORK?
Benetrends creates a retirement plan for you. thank the money you?re going to use for your business, they roll that into your retirement plan. I?m just simplifying this, but once the money in the plan you can use it for your business.
Everything has to be done according to irs regulations- how you pull out your money, exactly what you?re using it for, setting up and maintaining the plan, all the documentation. Benetrends helps you do this. You don?t have to figure out anything.
HOW LONG DID THE SET UPTAKE?
Three weeks. once the money was rolled over into the new plan, we has access to the funds in about 48 to 72 hours.
IS THE ASMINISTRATION A HEADACHE?
With a plan like this, there are responsibilities. But it?s not more administrative work than I have to do for things, like paying my taxes and paying sales tax.
Benetrends does a lot of the administration for you, if you want to roll over additional money from your 401(k) plan, you need to get them involved. That money has to go there in a qualified manner. And you need to provide them with information to file your plans tax return once a year.
HOW MUCH IS THIS SERVICE COSTING YOU?
It wasn?t inexpensive. The initial rollover was about $3,000 to $4,000, because there?s a lot of work that they have to do on the front end. [The cost of the same plan now is $5,000.] Then every year to keep my plan complaint, it?s about $1,000. This includes doing my tax returns for the plan.
WHAT ADVICE CAN YOU OFFER OTHERS INTERESTED IN THIS TYPE OF FINANCING?
Having worked in human resources and benefits, I knew that when it comes to compliance and 401(k) plans, you have to be on top of things. You can?t just go to anybody for this. I would not go with a company that does not have a national reputation and that hasn?t been doing this an extremely long time.
Printed from: http://www.benetrends.com/news/startup-finance-roll-it-over/ .
? 2012.
Source: http://www.benetrends.com/news/startup-finance-roll-it-over/
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