One of the many misconceptions surrounding the debate over changing the way Social Security taxes are invested is the intentionally misleading one that the only alternative to the current structure is privately owned and controlled accounts that must invest in the stock market. Opponents of private accounts are literally giddy with glee each time the stock market drops because they believe that supports their case that such investment would be too risky for people to stomach. Their ridiculous contention that the only 100 percent safe and secure retirement account is the Social Security Ponzi scheme has already been covered by me, as well as many other learned individuals.

I thought this would be a good time to take another look at something I wrote about a little over a year ago, using your retirement account money to invest in your own business. I referred to a company in San Diego, BeneTrends, Inc, that has the prototype for setting up such an investment. I have no financial connection of any kind with BeneTrends; but I still think their concept is excellent. I have yet to hear of another company providing a similar service, and would be interested in learning of any.

The managers of BeneTrends liked my explanation of their program so well that they requested my permission to include it on their own website. This has lead to various emails from people who have been checking it out, such as the following.

From an attorney:

Subject: BeneTrends

Do you have any clients who have used BeneTrends? I see that BeneTrends is using your name and was wondering your experience with them? http://benetrends.com/News/TaxGuru.html. Someone has asked me about them.

My Reply:

I don't have any clients of my own who are using BeneTrends. I learned about their service about a year ago from a reader and checked them out and wrote that article for my blog, which I gave them permission to post on their site.

Since then, I have received a couple of emails from people who said they were using BeneTrends and were happy with their service. There were only about two or three such emails.

What is good to note is that I have yet to receive any negative feedback of any kind regarding BeneTrends, which I assume would be forthcoming if anyone were to have a bad experience with them.

I hope this helps.

Kerry

From a person considering using BeneTrends:

Subject: Benetrends Rainmaker plan

Mr. Kerstetter,

I am very close to retaining the services of the folks at Benetrends to assist me in transferring a portion of my 401K savings to a new C corp. I plan to open.

I read your review of the Rainmaker plan at the Benetrends web site. To your knowledge are there any negative tax consequences using the Rainmaker plan? I would hate to have a surprise at a latter date. It appears the plan is within the IRS guidelines?

Of course I'm asking you because you are the expert. The 401k money will be worth more in ten years in my new business than invested in the stock market for the same duration. The franchise I am buying has a great track record and I feel I can successfully grow a profitable business. I hope in 5-10 years I can sell the business and roll the proceeds (at some higher multiple) into another retirement plan.

I appreciate any words of wisdom to help me through this "scary" process.

Sincerely,

As long as you follow the procedures, and properly understand the nature of the transaction that BeneTrends is setting up, everything should be fine.

You have to be very prudent, as manager of your corporation, that the money coming in from the 401k plan is to be considered as an investment in capital stock. You must therefore exercise due fiduciary diligence in conserving, maximizing and protecting that investment, just as you would if the money were being invested by unrelated parties.

I have seen cases where the corp managers got into serious trouble with IRS because they abused this fiduciary responsibility and used the invested funds as their own personal piggy-bank and blew the money on non-business kinds of things. I have never heard of these problems with BeneTrends clients, but I have seen them in similar types of transactions.

You are not supposed to have any personal access to the retirement funds without that being considered a taxable withdrawal. As long as the money is being utilized for legitimate business purposes, there will be no problems.

There will actually be some big tax consequences down the road if your business does well and the value of your retirement account grows considerably in value. There will be more income tax to pay when you draw out of your retirement plan in your later years.

Similarly, assuming our rulers in DC are not successful in killing the estate tax before you pass away, there will be a much larger asset to be included in your estate and possibly confiscated by IRS. Also, if you don't have the plan in a living trust, the increased value could trigger higher probate costs, which are usually based on overall gross estate values. A good estate plan is essential to ensuring that the net worth you build up during your lifetime can be preserved and passed on to your choice of heirs.

Good luck. I hope this helps. As always, you should be working with a tax pro who can help you fine tune everything to fit your particular circumstances.

Kerry Kerstetter

Follow-Up:

Kerry,

Thank you very much for the feedback. I really appreciate it and I will take my fiduciary responsibilities very seriously.

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 5/06/2005 03:23:00 PM Send this post: