“Use your retirement funds to finance your own business”
Pennington Consulting Group financing options lets you invest your existing IRA or 401(k) funds into launching or buying a business of your own. You don’t have to take a taxable distribution because you are buying stock, as an investment, in your new company. And you DON’T NEED to apply for a loan, because you’ll be using your own money, interest-free.
As your business grows, so do your retirement savings. Whether you’re pursuing franchise ownership or an entrepreneurial venture, Pennington Consulting Group has the platform, support, expertise, and services to set you up for success.
Our goal is to help you reach your goal
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As you may have discovered, getting a bank loan has become more challenging than ever. There has been a $40 billion decrease in smallbusiness loans over the past few years. And since small businesses currently get 90% of their financing from banks, this presents a problem for many potential business owners. Fortunately, there’s a financing option for those who cannot or do not choose to go the bank route.You will have no debt and no payments to make.
What you will have is an operational 401(k) plan that you can contribute to—an affordable and ongoing benefit for you and your employees— one not commonly available for small businesses. And it doesn’t take long to set up. With Pennington Consulting Group, LLC, you can get your financing in place and be owning a business in less than a month.
Pennington 401(k) Financing Option: how it works.
Though setting up a 401(k) with your retirement funds is a nontraditional financing option, it has been employed in the United States for decades. The structure had its beginning with the passage of ERISA (Employee Retirement Income Security Act) in 1974. Since we launched this program we’ve used it to help thousands of people start their own businesses successfully. It’s all accomplished with a simple, five-step process.
We form a new business entity, a corporation, on your behalf. Pennington Consulting then creates a 401(k) plan for the new business. Our staff facilitates rolling up to 100% of your retirement funds from your existing accounts into the new 401(k) plan—without taking a taxable distribution. Once the money transfers to the new 401(k) plan, the plan makes an investment into the corporation. The corporation, debt-free and cash-rich, can now purchase the business or franchise of its choice.
Is this a new concept? Why don’t more people know about this?
This is not a new concept. For years, private companies have been able to utilize retirement funds as a source of business capital. Most financial advisors and stock brokers, however, are not made aware of these investment options because these investments do not provide a sufficient profit for the institutions they work for. Investment firms and stock brokerages do not want clients to move their funds outside of their companies where they would no longer be able to draw a percentage of your income.
Is this a loophole?
Not at all. The Employee Retirement Income Security Act of 1974 (otherwise known as 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, Pennington Program was built to enable small, private companies to utilize retirement funds as a source of business capital.
Why is this becoming more popular now?
The baby boomer generation has been forced to consider investment alternatives like because they have had sufficient time to accumulate greater assets in their retirement accounts, and the stock market’s volatility makes security investments seem less than secure. During the past the years, Pennington program has gained significant consumer and professional acceptance and will continue its exceptional growth as more and more individuals look to take their retirement investments into their own hands.
Can I pay myself a salary?
Yes; in fact as part of this process you will need to be an employee of your new business, providing a bona fide service, which not only gives you the ability to draw a salary, but actually requires you to do so.
What is the maximum salary I can draw?
As an employee of your company you are entitled to draw a fair and equitable wage. Your compensation must be “reasonable” and you are strongly encouraged to employ an HR firm to conduct a salary survey or to utilize one of the salary evaluation sites available online.
What type of business can I purchase?
Almost any legal business or franchise, whether you are starting something new or buying an existing business, can be purchased through Pennington Consulting Group IRA financing program. The business entity that your retirement plan invests into, however, must meet the definition of an operating company.
What constitutes an operating company?
An operating company is an entity that either directly or through a majority owned (55{240dab3b42cee03bff15e8ed9c2f0851a7047a00dd8ba441998816dc94f5326d} or greater) subsidiary, sells a product or service and where that product or service sold does not constitute the investment of capital.
What constitutes the investment of capital?
While very few businesses fall into this definition, those that do cannot be funded through Pennington’s Program. Examples of businesses that do not meet the Operating Company Requirements include: Factoring Services businesses, Investment Advisors, Venture Capital firms and Day Traders. If you think your business investment plans might fall into one of these non-compliant categories please call us right away to discuss your financing options.
What kind of corporation do I have to use?
Pennington Consulting Group utilizes a C Corporation (C Corp.) business structure to meet the compliance requirements of ERISA and Internal Revenue code. A Limited Liability Company (LLC), Partnership or S Corporation (S Corp) does not meet the statutory requirements necessary to operate this structure.
What about double taxation (for the C Corp)?
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 qualifies tax professional. Paying taxes when you take a distribution from your retirement plan can ever be legally avoided.
Do I have to offer the 401(k) to all employees?
Any employees that meet all of the eligibility guidelines must have the option to participate in a 401(k) plan; however, this does not offer employees ownership in your business.
Why should I utilize Pennington’s Program versus a traditional bank loan?
By utilizing your retirement funds as seed capital for your business investment you effectively avoid all debts, fees and interest payments associated with taking out a loan. This strategy greatly reduces your overhead, which can prove invaluable in the early stages of a business venture. Instead of sending money to a bank in the form of interest payments, that money can be reinvested in marketing, promotions, staff or equipment that will enable your business to grow even faster.
How much of my IRA can I use for my business venture?
In most cases, your entire IRA can be rolled into your new business venture.
When do I have to pay my IRA back? Is this a loan?
The involvement of your IRA funds is not a loan, but an investment into your own business; thus, there is no time requirement for the plan to recapture its investment. Typically, the return of investment is done through a stock buy-back from the 401(k) by the corporation or upon the sale of the business.
Can I invest in securities as well?
While some investment in securities is acceptable, a business that receives a significant portion of income from pure investments like securities trading would not comply with this exemption.
Will I owe taxes and penalties if my business fails?
As long as you make a sincere and reasonable attempt to make a successful investment with your retirement plan, you should not be at risk for taxes or penalties in the event your business would fail.
Do I have to get an appraisal if I am buying a business?
If you are starting a brand new business or franchise, or buying a business on an arms’ length basis from an informed and uncompromised third party, you probably will not be required to get an appraisal. If you are purchasing an existing business, it is prudent, with or without retirement funds, to get an appraisal. If you are using Pennington’s Program to recapitalize an existing business that you own, you will need to get a business appraisal.
Can my spouse or another close family member co-invest, work for the business, or otherwise be involved?
Yes; the exemption to “prohibited transactions” permits participation by any friends or family members.
What are the maximum contributions that I can make per year to this new 401(k)?
If you are over the age of 50, you are able to contribute up to $22,000 of your pre-tax earnings to the 401(k) per year. If under 50, the maximum contribution is $16,500 for the 2011 tax year.
Can I still use part of my retirement money to invest in your other product (the Self-Directed IRA LLC)?
Absolutely; many of our clients diversify their retirement plan’s holdings into many investments such as real estate, loans and tax liens.
