New Source of Venture Capital

Are you looking for a new source of venture capital to start a new business? The IRS, through a private letter ruling, has approved the use of retirement plan benefits to fund a new business start up. Let’s assume that you have retirement benefits in an IRA account or in the retirement plan maintained by a former employer and desire to start a new business venture but don’t have the funds needed to start the venture nor can you borrow the funds from a bank. Here is what you can do.

Set up a new corporation for your business and have that corporation adopt a qualified retirement plan (normally a 401(k) plan) for the new business. Roll over some or all of your retirement plan benefits from your IRA account or the retirement plan maintained by your former employer. This is a tax-free rollover contribution. Once the money has been transferred to the new qualified retirement plan that you have established, transfer the money to your new corporation in exchange for stock in that corporation which the retirement plan will then own. The money transferred from the retirement plan to the corporation can then be used as working capital for the new business venture.

This is a fairly complicated arrangement and it is imperative that all the documentation is properly completed as outlined by the IRS. It also goes without saying that you need to think long and hard about this type of an arrangement when risking your retirement plan funds on a new business venture. We would be glad to discuss this arrangement with you in detail.

Curtis & Curtis, P.C. is a full service law firm located in Jackson, Michigan providing superior legal services and advice to individuals, families and businesses throughout mid-Michigan since 1901.

This publication is provided for general informational purposes only and does not constitute formal legal or other professional advice. No attorney-client relationship is created with you when you read this information. The above information may be changed without notice and is not guaranteed to be complete, correct or up-to-date, and may not reflect the most current legal developments. If you have any questions or need assistance, please contact Curtis & Curtis, P.C.