Who knew that "wanna be" business owners can use money from their retirement accounts for start-up capital? Well, Leonard Fischer´s clients know. Fischer, a specialist in employee benefits and retirement plans, has been administering such a program since 1992.
"This provision has been in the law for at least 50 years," says Fischer, who calls it "helping people invest in themselves." Large corporations take advantage of it, he says. "We´re just doing the same for the smaller employers."
Amongst retailers that Fischer has helped, by way of this plan, are pet stores, art framing shops, convenience stores, 99-cent stores, and transmission, brake and tune-up garages. "Probably two-thirds of our clients are franchises," he says. One of the more unusual businesses Fischer helped to launch is a company that sells caskets on a retail basis.
Here´s how it works: First, Fischer has his clients set up a corporation — usually in the state where the business is, "but it can be anywhere," he says. "Then we establish a retirement plan for their new business. We amend the retirement plan, allowing the plan to accept roll-over contributions. The funds are rolled over from the former employer´s plan into the new retirement plan we´ve created.
"Then the person — who is now an employee of his or her new corporation — directs that the funds be invested in something called Qualifying Employer Securities, which — quite simply — means common stock of the company."
How much money can a future business owner pull out of a retirement account to open a store or business? "One hundred percent," says Fischer. "We´ve done them as small as $20,000 and we´ve done some that run into seven figures."
There is no tax on this program. No loan repayment. "And what´s nice," Fischer says, "is that, assuming the client stays with the business until he or she is 59 Â½, all the gains will be taxed as long-term capital gains.
"It´s a real neat way to finance a business because, as you know, the biggest reason why small businesses fail is lack of working capital."
Fischer, (Len, as he is known), founded BeneTrends, www.benetrends.com, in 1982. "I´m having the time of my life," he says. "It´s nice to make a living and help people at the same time. One client the other day said, "Len, you´re my savior.´ "
Coming up soon: Meet one of the retailers who launched a business with Len Fischer´s help.