How to Access IRA Funds Before You Are 59 1/2!

David: Hi, David Moore, Equity Advantage, IRA Advantage. And we’re in the COVID times, but I’m happy to have Tina Colson in our firm here with me today. And she’s going to test me with some questions. So we’re going to be talking about some retirement opportunities that may or may not be… Actually, I’m going to say they’re very timely opportunities right now, but hopefully we’re going to get you some good information that you can use, whether you’re some type of a business broker or you want to start a new business, or you’re just looking for other options.

A place to get started, you’ve got a franchise that’s exciting, all kinds of different opportunities. So we’re going to talk about things that you can do. I don’t like being told I can’t do things. So that’s one of the things I love about this business. So Tina, you want to fire away at me and test me and see if I’ve got the answers for you today.

Tina: The first thing- I know he has the answers, so that’s the easy part. So we’re going to talk about the rollover business startup and again, through these times of COVID, I think it’s dismal for many people because they’ve either lost their jobs or maybe they’re looking at their corporation saying, “Gosh, what’s going to happen in the future?”

And again, it doesn’t have to be a dismal situation. I think that we have a lot of opportunities, like you’re saying, moving forward. And through that, my question would be: how does a person access their IRA funds? They’ve got their IRA funds out there. Typically, we can’t access it until we’re 59 and a half. So, how do we unlock that door? And for folks in this situation, what can they do with that?

David: Yeah. Well, I think it’s a great question. And I guess one of the nice things, or one of the things that we are able to benefit from this time versus the last crash is that we have things that are time-tested. So we’ve got a variety of opportunities there.

And it’s whether you’re looking for that olive branch to your future with a new business opportunity, or you want to increase some investment opportunities by going into some self-directed vehicle, whether it’s 401k plans or checkbook IRAs, but these things.. typically your question is about when you can do these.

So any IRA can be self-directed when we’re talking about 401k plans. But we’ve got restrictions obviously. You mentioned that 59 and a half. So if somebody typically in this world, if you’re happily employed under 59 and a half years old with your retirement accounts and current corporate account, you’re really stuck.

David: Well, we’ve got lots of people that have become unstuck, I guess, in that situation, unfortunately, with the job situation. So we’ve got a few opportunities that, that haven’t been around. One of them is the CARES Act. So you think about what it did, and they gave us some relief there. They gave us the ability to take up to a hundred thousand dollars for up to three years and use it as you choose.

So maybe you have a property that’s having a hard time, or maybe your business is having a hard time, or maybe you just personally are having a hard time. You can take up to that a hundred thousand out. Now we have to, I guess, qualify that. Because some plans, I guess, what we’re hearing and seeing is some plans or some trustees, administrators, are not allowing that provision to be used.

David: So I would really put pressure out there. If you’re in a situation where you need those things, really ask the questions, push and get what you need to get. But with that said, if you’ve lost your job, you now have access to that money.

So when we’re looking at those 401k plans, and as I said, any IRA can be self-directed. 401k plans you’re looking at how old they are, current plan, previous employer plan, what’s going on. And actually Tina, you’ve been with us for a few months now. And you had one of those plans, right? And we talked about it when you came in and you were talking about rolling your money into our company plan. And what did I tell you? Don’t, right? And why would I say that? I mean, the reason I’d say that is she’s under 59 and a half, and she’s got a while till she gets there.

David: So this is an opportunity for her to go do what she wants to do with that money. So that’s what she’s doing. But in this situation, if you want to do, let’s say, some type of business startup, the last time we had a crash, we helped people with everything from mattress companies, bed companies, to mining operations, gold, silver, palladium mine for a retired Intel guy. We’ve done Alaskan fishing operations, all kinds of different things.

So you really sort of leave it up to your imagination. Now, you also mentioned maybe you have needs in your life as it is, right? And I sort of referenced property bailouts or business bailouts. Well, the rollover business startup, what it really entails is taking a retirement account, moving into a new 401k plan and doing a C Corp. The plan buys the court, the court makes the investment in the asset, whatever it is.

David: A franchise world works this arena pretty well. They understand, but a lot of people just are not at all aware that it can be done. And if you look at Rob’s online, you’re going to see a lot of bad problem transactions. And it’s because of the structure.

Typically, it’s going to be people using some form of IRA and LLC, instead of what has to be a C Corp and a 401k plan. The other problem that people have is a lot of times this business startup is the first time that person’s had the opportunity to do their own business. They’ve dreamed of it their whole life, they’ve been told no their whole life and now, “Hey, it’s mine. I don’t want anyone else to buy in.” So their natural thought is that I’m going to fully subscribe the ownership of the corporation with my piece of the retirement plan. The government doesn’t like that.

David: So we have to look out when we’re putting these things together, we have to understand what that person is doing, what they want to do. And if we look at bailing out, if you’ve got a business that’s needing help right now, we can’t just take money to inject in your retirement account to inject in your current business. We’d have to literally create this new Corp. And you personally would put your business into it, receiving shares, attributable to whatever that business value is. And then at the same time that’s happening in that new code and the new C Corp, we’re going to have the retirement account make that investment in there too.

So that’s how we would take care of a problem with a pre-existing business, as we’ve got to create literally a new business and get that money in there because we cannot have a transaction between disqualified parties.

Tina: So what happens if somebody wants to start this business and there’s just not enough money in their account to really make the whole thing happen and fund it that way, is there a way to get a loan? How would you proceed in that arena?

David: Great question. You got to look at it and say, “Okay, how much money is needed to start a business?” Now as I said, we’re talking a 401k plan and a C corporation, and some people just really are adverse to C corporations first off. So we really have to sort of look at the money that’s available to make that transaction happen.

And if we don’t have to do a rollover business startup, if we can use just a 401k plan and just any other entity, if they can do the deal with 50,000 or less, let’s just borrow the money from the plan and do it that way. But if they need more than that, then it’s a question of how they get it. Where does it come from? And I think the biggest thing about Tina’s question is, and you don’t think about it till you start getting involved with it.

David: We actually require our clients to put no less than 5% of their own personal money into it.

Tina: Correct.

David: But it doesn’t have to be at that 5%. It could be any number. So if you want to, just as we created that other entity with that business that was having a hard time and you’re receiving shares attributable the value of the business, just think of it as if it’s a new startup, you’re just going to come in with whatever cash is needed. The plan and you, whatever the total is, we can do whatever you need to do, but we want to see at least 5%.

And that is partially because if you need more money and you want to borrow that money, it’s got to be typically nonrecourse debt. But if we get you in personally at 5%, then we can, a lot of times get an SBA loan that is not going to be available if we don’t have you personally involved.

Tina: As David always says, “It’s putting your skin in the game.”

David: Yes, yes.

Tina: So here we are, once again.

David: Funny how that changes things. A little skin in the game.

Tina: A little skin in the game makes us work harder. David, thank you so much for your answers today. And we just hope that you give us a call. If you have any questions, free consultations, and we’re here for you. So again, please call us David Moore, Tina Colson, IRA advantage, iraadvantage.com. Thank you.

David: Thanks for your time today.