By Monty W. Walker CPA, CBI, BCB
February 26, 2009
The need to use retirement funds for the purpose of making non-publicly traded investments such as buying a building, purchasing a parcel of land or acquiring a business is growing. It is extremely common to find people whose liquidity is located primarily in qualified vehicles such as IRAs, Pensions and 401(k) rollover accounts. As people are being downsized from Corporate America, they find themselves at a crossroad of either taking the entrepreneurial road or finding another job. Many people are deciding to take control of their own destiny by starting or buying a business. Thus comes the problem.
Large bases of these people have been building retirement accounts so most of their money is located in qualified vehicles. If improperly accessed, they stand to be hit with a 10% penalty and often pay 30% or more in federal income tax. Depending on tax bracket and the state of residence, total federal and state taxes can encroach on 50%. The idea of losing from 30% to 50% on a distribution from a qualified account does not set well with most people. So, the question to be answered is, How can a person access his/her retirement funds to purchase a business [Read more…]