The strategies to do so and not run afoul of I.R.S. regulations are varied, but the main one is to start a business and have it adopt a 401(k) plan. The existing 401(k) plan is rolled into the new one, which is invested in the new business. Voilà — instant financing. The downside, however, is that there is no money for retirement if the business fails.And there is evidence that most of these businesses do fail. The Internal Revenue Service terms one form of this scheme as a Rollovers as Business Start-Ups plan, or perhaps with some unintended irony, a ROBS plan. In 2009, the I.R.S. studied ROBS plans and found that most of these businesses had gone bankrupt, losing the person’s retirement savings. In most cases the money was lost before the business even got off the ground. Nonetheless, the I.R.S. does not prohibit ROBS plans, but it has called for more scrutiny of the structure.
This has not diminished the ardor of franchisers and other investment advisers selling such plans. They aggressively market them to would-be entrepreneurs. Figures are hard to come by, but the chief executive and co-founder of Guidant, David Nilssen, recently told The New York Times that inquiries about these types of plans were up 196 percent in 2011 from 2009.
There is no short cut to wealth. Well that is not actually true, a very small portion succeed. However, for most investors this strategy leads to bankruptcy.
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