Dienes Quoted in Businessweek.com
TroyGould corporate attorney Louis Dienes was recently quoted in the Smart Answers section of Businessweek.com about tapping into a retirement account to fund a start-up business. In the October 20, 2009 article, Dienes said the biggest obstacle preventing people from getting the money they need to start a new business is simply the fear of asking. He suggests entrepreneurs should overcome this fear by carefully thinking through their business plan and explaining it in a way that convinces the investors that it's the right path.
"Continue looking for employment while you research your business venture. If you don't find anything and none of the funding alternatives we've discussed [in this article] pans out, you're better off with an ERSOP [Entrepreneur Rollover Stock Ownership Plan] than with cashing out your IRA funds outright," Dienes said.
Withdrawing money from an IRA will force a business owner to pay both income taxes on that money and a penalty for withdrawing money early, assuming you are younger than 59 1/2.
Dienes said, "By setting up an ERSOP, you set up a new company, create a profit-sharing trust for that new company, rollover your IRA, and use your retirement funds to purchase stock in your new company, without incurring taxes."
The catch with ERSOPs is that they are a funding vehicle that is not officially sanctioned by the U.S. Internal Revenue Service. "The tax treatment of ERSOPs has not been conclusively resolved." Dienes said.