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Do I Need A Specialized Tax/Retirement Plan Attorney in Las Vegas?

Las Vegas, NV |

I will be purchasing an existing business in Las Vegas with 3 partners. We all have 401K’s. I read we can use our 401K to fund the business. I am told we can do this through a C-Corp. It is suggested online that I find a lawyer who specializes in this area. I understand the very basic concept and risks involved but little else. Must we use the 401K money right away in the start-up phase (have start-up cash) or can we allow our 401K money to sit in the “C-Corp fund” for use down the road when it’s time to expand or to purchase a second location? I would also like to know if there is a minimum amount that must be in the 401K in order to use the funds for a business. My initial plan was to hire a CPA, open an LLC on legal-zoom.com and convert to a C-Corp later. But now I’m wondering if I need a specialized attorney. What are ballpark attorney fees for this type of service?

Attorney Answers 3

Posted

Yeah, you need legal advice. The 401k issue will require some legal research and a tax opinion. You may need both a CPA and a lawyer. My partner does complex business acquisitions, but we do not quote prices online. It would not be prudent to quote a price before we saw exactly what you are looking to be done. Depending on the nature of your business, this could be a lot of work.

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Posted

A primary issue is whether you're using a 401(k) account from a job you no longer have vs. one for an employer with whom you are currently associated. Plan documents generally govern what you can do with the money. If it's a 401(k) from a former employer, you can roll the assets into an IRA. Whether you can fund your venture through those IRA assets without incurring tax liabilities and other issues will require counsel.

The foregoing is not legal advice nor is it in any manner whatsoever meant to create or impute an attorney/client relationship.

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Richard Todd Cunningham

Richard Todd Cunningham

Posted

I agree. In addition, you will need to make sure the IRA is a self-directed IRA that will allow investments in an active business. There is a risk here in addition to the tax issues. You are essentially exposing your retirement assets to creditors of the ongoing business when they normally would be exempt. You will want to make sure your company is organized and running properly otherwise creditors of the company may be able to pierce the corporate veil and have access to all the retirement funds. If you are okay with that risk, you can proceed but make sure it is a proper IRA. Many 401(k) plans do not allow such an investment because the administrators do not wan the liability associated with them.

Posted

Additionally, there are tax limits on using protected retirement funds to acquire an asset in which you will be actively involved. This is probably going to take advice from a CPA or tax attorney, as well as your business attorney.

And if you really use a "self-inflicted" LLC, you are likely to be creating a toxic situation which an attorney will not want to touch, or at the least, it will probably cost more than if he had been involved from the start.

If you really can't afford to have an attorney involved from the start for things that are this important, you are at the definition of "undercapitalized."

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