Small Business Loans

Common Questions



Can I really use my retirement funds to start a business without the burden of taxes or penalties?
Yes you can.  ERISA (Employer Retirement Income Security Act of 1974), Paragraph 408(e) allows for the investment in "Qualified Employer Securities" provided that three (3) criteria are met.

1) No commission is received for the sale of the stock.
2) When sold, it must be at fair market value
3) The plan is self-directed. You can invest in stocks, bonds, mutual funds or cash. You cannot invest, however, in collectibles such as Persian rugs or gold bullion.


What kinds of retirement funds can I use?
The types of allowed plans are: 401(k)’s, 403(b)’s, 457's, Annuity Plans, Cash Balance Plans, Defined Benefit Plans, Employee Benefit Plans, IRA's, Money Purchase Plans, Profit Sharing Plans, SEP's and SIMPLE Plans. The types of plans that are NOT allowed are: Roth 401(k)'s, Roth IRA's and IRA's that are inherited by anyone other than the spouse of the deceased.


How much can I contribute each year to my 401(k)?
The maximum amount you can contribute changes every year. For the current tax year (2009), you can personally make a maximum deferral contribution of $16,500. If you are over the age of 50, you can make an additional catch-up contribution of $5,500. If you choose to have your company make additional employer contributions, then your contribution could be even higher.




Do I have to offer the 401(k) to all employees?
Yes – it is the law. As a matter of fact, the IRS in their October 1, 2008 issuance of its Director Memorandum pointed out that there were employees in some cases who were not notified of the existence of the plan, did not enter the plan or receive contributions or allocable shares of the employer stock.


Can I use my existing C Corporation?
You can use an existing C-Corporation if it qualifies. Please contact your WG Account Manager to verify if your corporation will qualify.


Is this a long and complicated process?
No. Most transactions are completed in 7 to 10 days. There are a few aspects of the process we cannot control. In some cases there are delays in the rollover of the 401(k) from your former employer. We have witnessed in some isolated cases, it taking up to 30 days. There are some states where electronic filing is not available therefore a time lag may occur. (i.e. PA)




How do I make sure I am following the rules?
As a WG Client, we can help you follow IRS guidelines and steer clear of prohibited transactions.


Do I have to have a C Corporation?
Yes. A LLC or S Corporation will not work. The VERSA plan utilizes a C Corporation business structure to meet the compliance requirements of ERISA and the Internal Revenue Code. A limited liability company, partnership or a corporation with a S election would not meet the statutory requirements necessary to operate this structure.


What are the fees involved?
$5100 plus $800 annually for the filing of Form 5500 Annual Summary report and Participation Report.




Is this a loophole?
Not at all. The Employee Retirement Income Security Act of 1974 (ERISA) essentially passed the responsibility of retirement saving from the employer to the employee. This is a specific exception that makes the Employee Stock Ownership Plans (ESOP) of industry giants like Johnson & Johnson and Anheuser Busch possible. Similarly, the VERSA program was built to enable small, private companies to utilize retirement funds as a source of business capital.


Is this becoming more popular?
Since more and more of the baby boomer generation have had sufficient time to accumulate greater assets in their retirement accounts, they have chosen to consider investment alternatives like VERSA. This is because the stock market’s volatility makes security investments seem less secure. This has become more important as more and more individuals look to take their retirement investments into their own hands. In particular, in today’s economy, retirement plans have, in some cases, lost in excess of 50% of their value over the past six (6) months.


I always hear about double taxation for the C Corporation.
The term double taxation refers to taxation that occurs on dividends paid by the C Corporation. Many times these taxes can either be avoided or mitigated through the use of a qualified tax professional. Paying taxes when you take a distribution from your retirement plan can never be legally avoided. Remember a "C" Corporation is a tax paying entity. An individual is a tax paying entity. When a tax paying entity is owned by another taxpaying entity, double taxation will occur. However, when a tax paying entity is owned by a non-paying tax entity such as a qualified 401(k) plan, double taxation for all practical purposes is greatly mitigated.




What type of business can I purchase?
Whether you are starting something new or buying an existing business, you can purchase any legal business or franchise through the VERSA program.


What is the benefit of using VERSA versus a traditional bank loan?
Unlike a traditional bank loan, utilizing your existing retirement funds as seed capital for your business investment enables you to avoid debts, fees and interest payments associated with taking out a loan. This reduces your overhead, which has been proven to be invaluable in the early stages of a business venture.


Is the VERSA 401(k) different from 401(k) programs I have already participated in?
Our VERSA Plan follows the same laws as the retirement programs used by large companies. The program is there for the benefit of the employees and is the same, or very similar, to what you have experienced before. In many large corporations, the 401(k) program allows you the option to purchase company stock, make investments in mutual funds or purchase stocks of other companies on the open stock market. This program allows you, and all eligible employees of your corporation, to make the same types of investments with your retirement funds.




Is this legal?
The laws governing 401(k) retirement plans were put into place in 1974 with the establishment of ERISA - the Employee Retirement Income Securities Act. Just as large companies, like Hewlett-Packard or IBM, are able to utilize Employee Stock Ownership programs for the benefit of their companies and their employees, so too can small companies create the same benefits through a VERSA 401(k) There are important requirements that must be met to set-up and maintain your plan. These include, but are not limited to, ensuring that you are operating a viable business, that you keep appropriate records and that you give all eligible employees the opportunity to invest in the retirement plan. These requirements are easy to follow. Your WG Account Manager will be available to work with you on an ongoing basis.


Can I offer this retirement plan as a benefit to my employees?
Yes. By law, any employee that meets the eligibility requirements must be given the option to participate in the 401(k) plan. This is very good news for you. According to surveys in the human resources industry, attracting and retaining great employees is one of the biggest issues facing small and medium businesses today. 

A classic human resources study documented that excellent employees are over 2,000 times more valuable than poor performing employees. Losing a really good employee for any reason is painful. You need to give yourself every advantage to make your business successful. Being able to offer a retirement program as a benefit to your employees can give you that critical edge in attracting and keeping the people that can help you achieve your dreams.


Will employees be allowed to invest in company stock?
The short answer is yes, absolutely. Your employees will be given a variety of investment options, including investing in the stock of your company. Specific procedures are provided with your 401(k) plan to allow them to invest in company stock, if they desire to do so. 
The longer answer is that you need to be aware of two things. The first is that your employees need to be offered the same investment options that you as a company official have access to. This includes the ability to invest in your company's stock, if they wish to do so. Other investment options our clients often use are the stock market, mutual funds, or any other investment opportunity offered by companies such as Merrill Lynch or Morgan Stanley. 

The second thing that you need to be aware of is that your employees cannot be required to purchase your company's stock. Your employee's retirement investment decisions must be totally up to them to make of their own free will. No one from WG, or any official of your company, is allowed to influence in any way the decisions of your employees as to how they invest their retirement monies.




Is there any limit on how much of my retirement funds I can invest in my business?
No. You can invest all or only a portion of your retirement funds into your business. Contact your WG Account Manager, and he or she will inform you if there are any restrictions on using any portion of your retirement funds.


Can other people, like my spouse or other family members, invest in my company? Do they have to use retirement funds to invest?
Other people can invest in your business. There are two ways for them to do this. If they will be working as employees of your company, they can roll their retirement funds into your new retirement plan. You can also allow others to invest in the stock of your company by purchasing stock directly, without going through your VERSA 401(k) plan. Anyone can purchase stock directly from your company. They do not have to be employees of your company to purchase stock directly.


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CFO Capital Partners, its affiliates and principals are not a United States Securities Dealer nor Broker nor US Investment Adviser.  CFO Capital Partners, its affiliates and principals is a  Consulting Firm and in some instances a Private Investor. All Emails and related correspondence are never to be considered a solicitation for any purpose in any form or content. We do not intend to, nor do we, provide investment advice or counsel to any particular transaction. You, as the Recipient, hereby acknowledges this warning and disclaimer. If acknowledgment is not accepted, Recipients must return the document copies, in their original condition, to the Sender via email or postal services immediately