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Jun 26, 2006 9:32 pm

[quote=BankFC]

Lol, thanks to everyone who actually posted something worthwhile.

[/quote]

Which advice do you think is worthwhile?

It would be fun to read why a guy with close to half a million dollars in his 401(k) would ask somebody sitting at a child's desk in a bank lobby what to do.

Jun 26, 2006 9:35 pm

Joe, I gotta differ from you on one point.

It may be foolish to just invest your money in ONE company, but not neccessarily ONE's OWN company.

Have you ever met many successful business owners??? 

I know you have.  Many of them put every last dime they had into the business. 

I have quite a few HNW clients that never even owned a brokerage account until they sold their business, retired, and needed somewhere to put the money.

I have clients who can invest $100,000, get a loan, buy some land, develop it, and make a killing either building or selling lots.  All their money is tied up in the business, IN ONE COMPANY. 

But for some odd reason, I can't (sarcasm) convince them to sell that company and invest everything into the stock market, and get the chance to invest in HUNDREDS of companies.

Why is that?

Jun 26, 2006 9:37 pm

[quote=NASD Newbie][quote=BankFC]

Lol, thanks to everyone who actually posted something worthwhile.

[/quote]

Which advice do you think is worthwhile?

It would be fun to read why a guy with close to half a million dollars in his 401(k) would ask somebody sitting at a child's desk in a bank lobby what to do.

[/quote]

LOL.  You truly are not worth my time.

Jun 26, 2006 9:54 pm

[quote=BankFC][quote=NASD Newbie][quote=BankFC]

Lol, thanks to everyone who actually posted something worthwhile.

[/quote]

Which advice do you think is worthwhile?

It would be fun to read why a guy with close to half a million dollars in his 401(k) would ask somebody sitting at a child's desk in a bank lobby what to do.

[/quote]

LOL.  You truly are not worth my time.

[/quote]

A cynic would conclude that you're not bright enough to answer, I'll give you the benefit of the doubt and conclude that you don't have an answer.

Jun 26, 2006 10:34 pm

It may be foolish to just invest your money in ONE company, but not neccessarily ONE's OWN company.

Have you ever met many successful business owners??? 

It is actually more foolish to invest in your own company without the advice and oversight of another professional.  People tend to over estimate their income potential and underestimate their expenses.  Most people haven't the slightest idea about balance sheet and income statement dynamics, much less profit planning or cost/volume relationships and break even analysis.  

This is something I can speak to with all seriousness.  Idealistic entrepreneurs jump in with both feet into a business without being prepared and with pie in the sky ambitions and fail miserably.  If you want to help your client I suggest most strongly that you urge him to prepare a detailed and researched business plan, a cash flow estimate for one year, for two years and do a market analysis of his business with comparisons of comparable businesses and competitors. 

For every successful business owner there are at least 3 broken hearted failures.

Jun 26, 2006 10:47 pm

[quote=babbling looney]

I think there is an exception to the 10% penalty if your client is at least 55 and has separated from employment.  Best part is, you don't have to do 72(t) distributions for 5 years minimum.

You lose that exception the moment you roll the 401K funds out of the plan and into a traditional IRA.  The exception holds as long as the client can leave his funds in the 401K or if transfered into another 401K.[/quote]

Really?!!  I had a client's CPA tell me that this works for IRAs?!!  Can you give me a cite that I can share with him?  I know he's going to try and use this exception for 2006...

Jun 26, 2006 11:44 pm

[quote=Indyone][quote=babbling looney]

I think there is an exception to the 10% penalty if your client is at least 55 and has separated from employment.  Best part is, you don't have to do 72(t) distributions for 5 years minimum.

You lose that exception the moment you roll the 401K funds out of the plan and into a traditional IRA.  The exception holds as long as the client can leave his funds in the 401K or if transferred into another 401K.[/quote]

Really?!!  I had a client's CPA tell me that this works for IRAs?!!  Can you give me a cite that I can share with him?  I know he's going to try and use this exception for 2006...

[/quote]

Yes, really.  The 55 year old exemption applies only to the qualified plan and to the money while it is in the qualified 401K plan.  When they roll it out, the money is recategorized as an IRA and is then subject to those rules not the 401K rules.  If the client wants to take money from the plan they need to do it before they roll it out.

Call any of your providers and ask them the IRS rules on this.  In section 2157 of the IRS guide is specifies qualified retirement plan exemptions and details that separate from amount rolled into an IRA.

Jun 27, 2006 2:37 am
[quote=Indyone][quote=babbling looney]

I think there is an exception to the 10% penalty if your client is at least 55 and has separated from employment.  Best part is, you don't have to do 72(t) distributions for 5 years minimum.

You lose that exception the moment you roll the 401K funds out of the plan and into a traditional IRA.  The exception holds as long as the client can leave his funds in the 401K or if transfered into another 401K.[/quote]

Really?!!  I had a client's CPA tell me that this works for IRAs?!!  Can you give me a cite that I can share with him?  I know he's going to try and use this exception for 2006...

[/quote]

Indy I am glad I am not getting my advice from you, this stuff is child's play.  55 only for QP and they must have retired, once you roll it it's 59 1/2 in an IRA

Jun 27, 2006 5:02 am

[quote=bankrep1]

[quote=Indyone][quote=babbling looney]

I think there is an exception to the 10% penalty if your client is at least 55 and has separated from employment.  Best part is, you don't have to do 72(t) distributions for 5 years minimum.

You lose that exception the moment you roll the 401K funds out of the plan and into a traditional IRA.  The exception holds as long as the client can leave his funds in the 401K or if transfered into another 401K.[/quote]

Really?!!  I had a client's CPA tell me that this works for IRAs?!!  Can you give me a cite that I can share with him?  I know he's going to try and use this exception for 2006...

[/quote] Indy I am glad I am not getting my advice from you, this stuff is child's play.  55 only for QP and they must have retired, once you roll it it's 59 1/2 in an IRA[/quote]

Easy...you'll bruise my fragile ego.  I'll be the first to tell you that I don't know it all.  Frankly, I'd not heard of the 55 and separated from service excpetion until another CPA brought it to my attention.  When he told me that it applied to this guy's IRA, who was I to question the advice?  If you'll remember some advice from basic training, we're trained to tell clients to consult their tax advisor.

I take it you know it all, eh?

Jun 27, 2006 6:57 am

[quote=BankFC]

I met with a gentleman a few days ago who has about $450,000 in this 401K.  He wants to start a business, and his original intention was to fund the business through his 401K via distributions.

Obviously, he's looking at massive tax consequences on taking the money (not yet 59 1/2)

I knew that you COULD invest in a privately held business via a self directed IRA (similar to investing in raw land via your IRA), so I did a little research and dug up some specifics...aka type of business structure needed, tax issues, etc.

Anyway, the long and the short of it is there are a couple different options, both of which are much better than simply taking the cash and paying the taxes.

My question is...has anybody done much of this?  Just curious to hear your experiences.

[/quote]

Hmmmmmmmmmm...interesting.

Well...besides all the bickering I would tell the client to do a partial Roth conversion.  Tell him that if he wants to fund this dream to still make precautions to ensure his retirement.  Tell him that the cost of this dream is the Roth conversion tax.  Convert 100-150k to a Roth and design a strategy for that to grow to a reasonable level over the next 20 years.  Effectively making his current 450k that is taxable at least 300k non-taxable 20 years out by carving out 100-150k now.

The remaining 300-350k should be structured in something with a guaranteed income stream.  In this case since 72(t) is not acceptable due to the client's age I would consider looking into a private annuity trust.

Jun 27, 2006 9:02 am

Amazing that the obvious hasn't been stated that this dumbass prospect should take out a loan instead of tapping into his QP.

QPs can't be attached by creditors. At least not in my state. That means when, er, if his business fails, he'll still walk away with something.

Jun 27, 2006 2:05 pm

[quote=babbling looney]

It may be foolish to just invest your money in ONE company, but not neccessarily ONE's OWN company.

Have you ever met many successful business owners??? 

It is actually more foolish to invest in your own company without the advice and oversight of another professional. 

[/quote]

BL, usually you give good advice, as you have here, but WHY ON EARTH do you assume all this hasn't already taken place???  Do you think you're the only professional around here?

This isn't bush league stuff, so OF COURSE there are other things going on. 

Just because I didn't take the time to intimately detail every aspect of everything that is going on with this client, you assume we're just flying by the seat of our pants???? 

With all respect, stop jumping to conclusions...

I simply was putting out the feelers to see if many others were running into this type of business, and as is par for the course, this forum responded with a bunch of "experts" giving specific recommendations with VERY LITTLE knowledge of the client.

It's easy to tell who the true professionals are on this board from the pretenders, newbies, and morons. 

Once again, it makes me realize why so many folks I meet have trust issues with brokers.  So many brokers just think they know it all. 

I wish they tested LISTENING on the series 7.

I appreciate the other responses that weren't client specific, and I am not going to waste any more time on this thread (I suppose I'll waste it elsewhere  ).

Jun 27, 2006 2:51 pm

[quote=BankFC]

Joe, I gotta differ from you on one point.

It may be foolish to just invest your money in ONE company, but not neccessarily ONE's OWN company.

Have you ever met many successful business owners??? 

I know you have.  Many of them put every last dime they had into the business. 

I have quite a few HNW clients that never even owned a brokerage account until they sold their business, retired, and needed somewhere to put the money.

I have clients who can invest $100,000, get a loan, buy some land, develop it, and make a killing either building or selling lots.  All their money is tied up in the business, IN ONE COMPANY. 

But for some odd reason, I can't (sarcasm) convince them to sell that company and invest everything into the stock market, and get the chance to invest in HUNDREDS of companies.

Why is that?

[/quote]

I hear ya, and trust me I've been down the same road.  BL has a point that folks really do tend to overestimate their earning capability and underestimate the risks inherent in their own business.  I've had folks that were otherwise very sensible people eviscerate their QP's and pay huge tax bills simply to get a few bucks to put into a struggling business to keep it on life support, only to see it all go down the tube later.

Having a nice tidy sum like that 450k in a tax-sheltered account is such a precious thing when it comes to one being able to maintain a nice lifestyle in retirement-I just hate to see people do something stupid like that when the chances of success, of making back the 50% or so lost in taxes, are minute.

Yes I've invested a lot in owning my own business, and it's served me quite well so far.  But, I haven't touched my retirement plan.  Ironically, I called my CPA a few weeks ago(my own trusted advisor) to ask how I could use about 1/2 of my retirement plan as a downpayment on a building I was all excited about buying for my office, and he talked me down off the ledge....reminded me to follow the very same advice I always render to my clients!


Jun 27, 2006 2:52 pm

[quote=BankFC][quote=babbling looney]

It may be foolish to just invest your money in ONE company, but not neccessarily ONE's OWN company.

Have you ever met many successful business owners??? 

It is actually more foolish to invest in your own company without the advice and oversight of another professional. 

[/quote]

BL, usually you give good advice, as you have here, but WHY ON EARTH do you assume all this hasn't already taken place???  Do you think you're the only professional around here?

This isn't bush league stuff, so OF COURSE there are other things going on. 

Just because I didn't take the time to intimately detail every aspect of everything that is going on with this client, you assume we're just flying by the seat of our pants???? 

With all respect, stop jumping to conclusions...

I simply was putting out the feelers to see if many others were running into this type of business, and as is par for the course, this forum responded with a bunch of "experts" giving specific recommendations with VERY LITTLE knowledge of the client.

It's easy to tell who the true professionals are on this board from the pretenders, newbies, and morons. 

Once again, it makes me realize why so many folks I meet have trust issues with brokers.  So many brokers just think they know it all. 

I wish they tested LISTENING on the series 7.

I appreciate the other responses that weren't client specific, and I am not going to waste any more time on this thread (I suppose I'll waste it elsewhere  ).

[/quote]

I understand your frustration but after all you did ask this question on a PUBLIC forum.  Nobody is forcing you to read all the "irrelevant" posts.
Jun 27, 2006 2:52 pm

BL, usually you give good advice, as you have here, but WHY ON EARTH do you assume all this hasn't already taken place???  Do you think you're the only professional around here?

This isn't bush league stuff, so OF COURSE there are other things going on. 

No need to yell .  Of course I don't think that I am the only professional around here.  I do think that I have been doing this much longer than many of you and have had the experience of being in the position of evaluating businesses and granting loans (or not granting) to existing and new businesses and then monitoring those loans and businesses for ongoing ability to repay.  I have seen many businesses fail because of a lack of planning and a refusal to take professional advice.

You are a bank investment rep. I am not denigrating you for that at all. I too was a bank investment rep for some time.  As a bank platform employee, why in the world are you even involved with this client and his business ambitions and business planning? 

Not to be crass, other than just being a helpful person, what is in it for you?  How are you going to be making money from this client?  This is your main function for the bank.  Your function to the client is advising him on investments.  I would assume your pay off is by keeping his 401K money invested with you so you can make commissions, while helping him figure out another way to finance his business and then referring him to some one in that arena.

Keeping investment advice separate from financial planning, which includes his business ambitions, is the reason we have had so much regulation and new rules recently imposed.

Jun 27, 2006 3:11 pm

No sweat....for awhile I didn't think anyone noticed my comment.

Perhaps if this ends up being the "best" solution, it's a way to limit his entrepenuerial risk to only $50k.  Not sure what kind of start up captial he thinks he needs, but ideally 50k would get him up and running and then hopefully he could be funded with revenue or qualify for a bank loan. 

Jun 27, 2006 3:14 pm

[quote=Cowboy93]This may be a chicken and egg question...but, if he can establish a business and then an owner-only 401k (funded by 450k rollover), he could borrow...but I guess that's still limited to 50k.  So, a very partial solution at best.[/quote]

i like cowboy's solution- i've done this recently with a client with just under $100k in the plan- he retired, then set up his own biz, we rolled the 401k to a 401k solo and he immediately borrowed (from himself at 1 pt over prime) the almost $50,000 ( caveat: i talked to him about not doing it, protect his retirement, ect...no go, he was going to use it, period.)

the cost is minimal for amts equal to and under $100k -- you can keep the TPA out of the equation, otherwise it can get expensive-

but here is food for thought:

set up a solo 401k with $100k-- borrow $50k from that AND borrow $50k from the existing 401k for $100k total-- i've not looked into it, can you do both?

Jun 27, 2006 3:31 pm

[quote=TexasRep]

[quote=Cowboy93]This may be a chicken and egg question...but, if he can establish a business and then an owner-only 401k (funded by 450k rollover), he could borrow...but I guess that's still limited to 50k.  So, a very partial solution at best.[/quote]

i like cowboy's solution- i've done this recently with a client with just under $100k in the plan- he retired, then set up his own biz, we rolled the 401k to a 401k solo and he immediately borrowed (from himself at 1 pt over prime) the almost $50,000 ( caveat: i talked to him about not doing it, protect his retirement, ect...no go, he was going to use it, period.)

the cost is minimal for amts equal to and under $100k -- you can keep the TPA out of the equation, otherwise it can get expensive-

but here is food for thought:

set up a solo 401k with $100k-- borrow $50k from that AND borrow $50k from the existing 401k for $100k total-- i've not looked into it, can you do both?

[/quote]

Cowboy you are right. An individual 401K is a good idea to keep the client invested and limit the exposure to only 50K borrowed. 

Texas: I don't know if a company 401K would allow a partial roll out of funds or not. The issue that I have seen with most (not all) company 401K plans after you have retired or left the company is that they don't want you to keep your money in the plan and sometimes force you to roll the account out.  If you have borrowed on the company plan, you might not be able to roll that loan into a new individual 401K if you have already borrowed there due to IRS rules.  The client may have to face a distribution event on the money borrowed from the company plan, if he is forced to close or roll the company plan out.  Not a good thing.

Jun 27, 2006 4:11 pm

>>Texas: I don't know if a company 401K would allow a partial roll out of funds or not. The issue that I have seen with most (not all) company 401K plans after you have retired or left the company is that they don't want you to keep your money in the plan and sometimes force you to roll the account out.  If you have borrowed on the company plan, you might not be able to roll that loan into a new individual 401K if you have already borrowed there due to IRS rules.  The client may have to face a distribution event on the money borrowed from the company plan, if he is forced to close or roll the company plan out.  Not a good thing.

BL- aren't company 401k's like a box of chocolates? never know what you're gonna' get--

most $450k 401k accounts i've run across, i've practically needed a court order to get them to release-

i'd rollover $100k into a solo 401k if possible, then borrow $50k from it, rollover $250 into an IRA, keep $100k at the old 401k, ONLY IF i could then borrow another $50k from it-  IF i really needed the $100k.

but since they are all different - you should check it out and see if it's possible first--

 

Jun 27, 2006 4:46 pm

[quote=TexasRep]

>>Texas: I don’t know if a company 401K would allow a partial roll out of funds or not. The issue that I have seen with most (not all) company 401K plans after you have retired or left the company is that they don’t want you to keep your money in the plan and sometimes force you to roll the account out.  If you have borrowed on the company plan, you might not be able to roll that loan into a new individual 401K if you have already borrowed there due to IRS rules.  The client may have to face a distribution event on the money borrowed from the company plan, if he is forced to close or roll the company plan out.  Not a good thing.

BL- aren't company 401k's like a box of chocolates? never know what you're gonna' get--

most $450k 401k accounts i've run across, i've practically needed a court order to get them to release-

i'd rollover $100k into a solo 401k if possible, then borrow $50k from it, rollover $250 into an IRA, keep $100k at the old 401k, ONLY IF i could then borrow another $50k from it-  IF i really needed the $100k.

but since they are all different - you should check it out and see if it's possible first--

 

[/quote]

If you're having a problem getting them transferred in then you need to learn how to handle the transfers better...it's not that hard once you get the right paperwork in your client's hands.....in my experience.