DRDA, P.C. Helps Entrepreneurs Use Retirement Savings to Buy, Start Businesses

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Entrepreneurs are using their IRA and 401(k) savings to buy, recapitalize, and start small businesses as conventional and SBA lenders make fewer loans. Many entrepreneurs are using a little-known qualified plan called the BORSA™ that enables them to use their retirement savings to buy or start a business without incurring a taxable distribution or borrowing against their plan.

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DRDA, P.C. announces a free webinar on December 9, hosted by the CPA firm’s Senior Partner, Douglas A. Dickey, CPA, to explain the BORSA™. This timely educational webinar will help budding business owners learn how to use their personal retirement savings to bankroll a business as lenders tighten credit standards and make fewer loans in the ongoing credit crunch.

The Small Business Administration recently reported that the number of 7(a) loans – the SBA’s most frequently accessed loan type – fell 30% in the fiscal year ended September 30. The decline in SBA lending is occurring at a time when many entrepreneurs are eager to start or buy businesses as they launch a second career after leaving the corporate workforce.

With credit tight, many entrepreneurs are looking for alternative financing sources beyond conventional and SBA lenders. For many small business owners the prime source of funding comes from personal savings, or by refinancing their personal residence with a home equity line of credit. Others turn to outside sources such as friends and family, capital markets, or private equity groups. However, funding from third parties can prove undesirable, because outside sources usually expect a lion’s share in the business in return for equity financing. And home equity loans can be as hard to obtain as a traditional small business loan in today’s lending environment.

A growing number of entrepreneurs are choosing to use a little-known qualified plan called the Business Owners Retirement Savings Account: BORSA™. A BORSA™ allows entrepreneurs to fund the purchase or recapitalization of a franchise, business start-up, or business property using their holdings in a “qualified plan” – a 401(a) pension, 401(k) profit sharing plan, 403(b), 457, or IRA rollover. By utilizing the BORSA™ these purchases can be accomplished without distributions, taxes, penalties, or the use of retirement plan loans.

DRDA, P.C., a CPA firm, designed the BORSA™ in 2005 as a result of extensive research for a tax and penalty-free solution for clients with the need to access their retirement accounts to start a business. They analyzed the provisions of the Internal Revenue Code (IRC) and the Employee Retirement Income Security Act (ERISA), as well as professional publications and court cases that they felt were pertinent. Additionally, DRDA sought the expertise of a nationally recognized ERISA attorney to solidify the legality of such a solution. Today, the BORSA™ is recognized and is available in all 50 states.

There are three basic requirements for setting up a BORSA™ for a business venture. First, the business owner must have an existing retirement account such as an IRA or one of the other aforementioned accounts and have the ability to transfer or rollover the funds in the BORSAÔ. Second, the business must be an eligible “active trade or business” that will have at least one employee. Third, the individuals need to work with professionals familiar with BORSAÔ rules and governing laws.

To clarify, a BORSA™ is not a loan, nor a self-directed IRA. A direct investment into an “active trade or business” by a self-directed IRA is prohibited. The federal government does recognize the use of money from a 401(k) plan as an equity investment. In fact, the Small Business Administration SOP 50-10(5) released on August 1, 2008 stipulates the SBA will not require a 401(k) plan owning more than 20% or more of a company to guarantee the loan. What’s more, unlike other sources of funding such as credit cards, SBA or asset-backed loans the BORSA™ plan does not generate additional debt for the business owner.

For additional information on the BORSA™, call 281-954-6040 and visit http://www.borsaplan.com.


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Louis Riley
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