Nabers Group CEO Warns Using Rollovers As A Business Startup ROBS
As A Strategy To Fund Small Businesses
on: November 4, 2009, 3:59 am
Author: Nabers Group
Nabers, CEO Of Nabers Group www.Nabers.com
Cautions Against The Use Of 401(k), IRA Rollovers As A Financing
Strategy For A Business Start-up.
Colorado November 4, 2009 - One unforeseen consequence of the
current recession has been the increasing number of Americans
who have stumbled into entrepreneurship after losing their jobs
to round after round of layoffs. Many of these people have taken
one look at a job market where the unemployment rate is nearly
20% in some regions and decided to start their own businesses.
It's a bold move and certainly there is something very admirable
about the idea, but also a risky one, with about half failing
in the first few years; making financing a small business
start-up something, which should be done with great care.
are a lot of people who think of using 401(k) or IRA rollovers
as a source of financing the start-up costs of a new business
or to cover the purchase of an existing one. While you may see
a lot of praise for these plans (called ROBS for Roll Over Business
Start-up by the IRS), especially online where their proponents
try to sell would-be entrepreneurs on the merits of this form
of financing, many financial industry experts strongly recommend
thinking again about using your IRA or 401(k) to fund your small
of these financial experts
is Jeff Nabers, CEO of the Denver financial planning company Nabers
Group. Nabers has written about how ROBS work and their risks
on his blog, where he warns against using these financing vehicles.
entirely understandable that people are tempted by ROBS; the recession
hasn't made small business financing easy to come by and there
are more Americans than ever trying to start their own businesses.
However, there are a lot of risks associated with using IRA and
401(k) rollovers. Beyond the old diversification maxim of 'don't
put all your eggs in one basket' the legality of the ROBS strategy
has been on shaky ground. There's a basic rule that prohibits
"self dealing" for any retirement account participant,
but ROBS promoters have attempted to skirt this by creating a
loophole that claims a special exemption. Unfortunately, a government
ruling from 2006 closed that loophole. ROBS structures could face
a stiff penalty, which amounts to approximately 115% of your retirement
funds," says Nabers.
a subject that is somewhat controversial in the financial services
industry, but as I have been informed by government officials
and my legal counsel, the 2006 ruling means ROBS no longer occupies
a legal gray area even. I can't recommend these to my clients
in good conscience. I don't see a bright future for this strategy
of funding, to put it mildly,"
Nabers isn't alone in sounding the alarm about ROBS and other
rollover schemes - there has been a lot of concern expressed by
financial experts in the last year. Previously, ROBS was considered
high risk, but as Nabers' put it, "My recent DOL meeting
was the nail in the coffin of the ROBS loophole."
unabashedly encourages entrepreneurship in spite of the government's
unfavorable stance on ROBS. His message to would-be ROBS users
is: "Start and fund your venture anyway [without ROBS]. You
can still raise money from others, including from their IRA and
401(k) accounts. Frankly, that is actually a surer path to success
because raising money from others will cause you to be more thorough
in your business planning."
learn more about Nabers Group, please visit: http://www.Nabers.com
To read what Jeff Nabers has written about ROBS and similar financial
please visit his blog at: http://JeffNabers.com.
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