When Ed Wills was laid off last year from his information-technology job at a robotics company in Grandview, Mo., he didn’t have enough money in his company 401(k) plan to retire. But he did have enough money in his account to fund a new business – tax free.
To withdraw the money without paying the usual taxes and penalties for early withdrawal, Wills executed a maneuver called a rollover as business start-up, or ROBS. It works like this: In January, with help from small-business finance company Benetrends, Wills established a 401(k) plan for his company, Wills Family.
Does this all sound too good to be true? It might be. Turns out, many ROBS plans may violate tax laws. The IRS recently instructed its auditors to scrutinize ROBS transactions.
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