On Wed, 15 Sep 2004 19:53:12 CST, paulmaf[at]aol.com (PaulMaf) wrote:

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The reason I asked, is because I found this on the Internet:

When attempting to cash in your 401(k), you may discover-as the
following entrepreneur did-that heavy tax penalties will accompany any
funds you get. To avoid that, take heed of Jim Brien's tale.
After nearly 20 years in sales and sales management for a large
manufacturer of printed forms, labels, and electronic printing
systems, Brien was growing antsy. The business plan he was writing in
his head was getting more and more detailed. And when the future of
the company he was working for seemed less certain, Brien, along with
five fellow salespeople, formed Print Integration Partners, which not
surprisingly, brokers printing and also offers forms-management
services.
Brien's business plan showed that the company needed about $500,000
during the first two years of operation for office equipment,
inventory (of forms) and receivables funding. Though Print Integration
Partners was up and running, Brien wasn't ready for a grand opening
until he knew that the business could be funded. "I thought it would
be a big mistake for us to launch headlong into the business without
any funding," he recalls. "At the time," Brien says, "the biggest
asset I had was the 401(k) plan from my previous employer, so
naturally, my first reaction was to see what could be done with that."
In fact, all the newly minted Print Integration Partners had 401(k)
plans, and in the aggregate, there were more than enough assets to
fund the business. The trick was unlocking these funds.
Brien and his partners could have liquidated their 401(k) plans. But,
he says, there's a 20 percent penalty off the top, and the
distribution from the liquidation must be taken as income in the year
in which it is received. So, if it's a good-sized distribution, it
will push the recipient into the higher end of the thirtysomething tax
bracket. No thank you!
A simple and straightforward approach would be to simply have the
401(k) plans purchase shares directly in Print Integration Partners.
This could be easily accomplished despite the widely held though
mistaken belief that 401(k) plans can only make investments in
publicly held companies.
However, Greg Brown, an attorney specializing in Employee Stock
Ownership Plans (ESOPs) with Chicago law firm Seyfarth, Shaw,
Fairweather & Geraldson, counseled Brien that there might be better
approach. Specifically, Brown proposed that Brien establish a Print
Integration ESOP from which the 401(k)s would purchase their shares in
the company. Such a transaction would require a highly specialized
team of financial professionals, according to Brown, but the structure
would deliver several tax- and estate-planning benefits that most
small businesses don't ever think about until it's too late. This team
that Brien would need included an attorney, an accountant, a valuation
specialist and a securities firm.
It took Brien about five months to assemble the team and put together
the transaction. By April 1996, about five months after Print
Integration Partners was incorporated, all the pieces were in place
and the transaction could be executed. Brien and his partners then
instructed Smith Barney, the custodian of their 401(k) plans, to
purchase shares in the Print Integration Partners Employee Stock
Option Plan, for which Smith Barney was also custodian. As a result,
cash ($427,000 in total) went from the 401(k)s to the ESOP, and from
the ESOP into the Print Integration Partners' bank account. Then stock
certificates in Print Integration Partners were issued to the ESOP in
the names of each of the employees making the investment.
Tricky, yes, but when it was all done, Brien and his partners had
successfully tapped their 401(k) plans without any tax consequences,
funded their new company without giving up equity or bringing in
outsiders and kept the balance of their savings intact.
The success of a 401(k) transaction depends largely on the team that
is assembled to help implement the transaction. Here are the principal
players:
" Counsel: You need an attorney to draft the documentation for
the ESOP, as well as to define and engineer the relationship of the
ESOP to the 401(k) plans. Although such a transaction is not beyond
the ken of a general practitioner, its cutting-edge nature probably
demands an ESOP specialist.
" Valuation consultant: Since at the end of the day, the ESOP is
buying stock from a corporation, you need a qualified opinion about
the value of the stock being purchased. There are lots of valuation
specialists, and many concentrate on specific industries. Rather than
just finding a specialist who understands a particular industry, it's
also important to find a valuation specialist who can work with
emerging or start-up companies. After all, traditional measures of
value, such as assets, or book value, are often not available with
start-up businesses.
" Stock brokerage: A brokerage firm is needed to act as the
custodian for the ESOP stock. Care must be taken to choose a firm with
the right size and capabilities. After all, current or future
employees who participate in the plan need to establish or roll over
their plan with the broker. As a result, you want a broker who can
provide not just service but also investment options or access to
investment options above and beyond the ESOP stock.
" Accountant: Everybody needs good tax advice, but with an ESOP,
the tax issues are even more complex. After all, as was mentioned, the
company's net income can be managed in part or whole through the ESOP.
In addition, the 401(k) needs an administrator to keep track of stock
purchases by employees. Some accountants, as well as brokerage firms,
can fill this role.

The cost of setting up a proper ESOP, given everything else you are trying
to do to start the business, wouldn't be a viable alternative. You have to
get determination letter from the Department of Labor, go to:
http://www.dol.gov/dol/allcfr/EBSA/T...550.407d-6.htm
to get the depth of the issue.


"Ellie" <luvtadance[at]aol.com> wrote in message
news:49tgk0pedsmutobr5tnjp9pg0pvkflfhpp[at]4ax.com...
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No!

Instead of an ESOP, since it is my 401K, I would imagine that I can
direct the investments. Can the 401K buy stock in a privately held
company? In other words, can the 401K invest in the stock of my own
company?

On Wed, 15 Sep 2004 08:36:49 CST, "BMS" <mcfarland[at]yahoo.com> wrote:

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"Ellie" <luvtadance[at]aol.com> wrote in message
news:ja4ek0hftbdk80tetg3r8dtbtpkpcl5t9b[at]4ax.com...
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You can establish a plan either a Solo 401k or other small business plan and
in most cases roll the old 401k money in.
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If the plan allows it.
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No, but look into a solo 401k if you don't inend on having employees other
than your spouse for a while. Loans can be made out those plans.

My understanding is that I can roll over my 401K into an IRA. Here are
the questions I have:

1. If I start my own business, can I start my own qualified plan and
roll an existing 401K into it?

2. Can an IRA be rolled into a qualified plan

3. If I want to start a company and create an ESOP, can I roll my IRA
or 401K into the ESOP. The thought was I would then use the ESOP to
buy my company's stock. Now I have investment capital for expansion.