how to get licensed to sell insurance
In general, to obtain a license to sell insurance, one must pay a fee, complete a pre-licensing training course and pass a licensing examination. Some states also require license applicants to be sponsored by an employer. Agent licenses must be renewed periodically and maintained by completing continuing education.
How to Become an Insurance Agent
Financing a Start-Up with Your 401(k): The Process
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Again, the steps are minimal to get going, but you’ll need a tax attorney or CPA to handle the formation of the corporation and the new retirement plan. Importantly, the people handling these matters should be well versed in the Employee Retirement Income Security Act, or ERISA, which contains many of the laws regulating employee benefit plans.
“Because it’s retirement plan money that’s being used for this, you have ERISA and internal revenue code penalties that apply unless all the Is are dotted and the Ts are crossed,” warns O’Donnell.
There are companies dedicated to guiding you through the process, such as BeneTrends of North Wales, Pennsylvania, and Guidant Financial Group in Bellevue, Washington. Guidant, for its part, charges a flat of $4,995 for setting up the plan. With that you also get two hours of time with an outside tax attorney. Additionally, Guidant charges a base fee of $800 annually to administer the retirement plan. If you have additional participants in the plan above the first two, there is a charge of $45 per participant.
Dig Deeper: How To Implement a Profit Sharing Plan
How to Finance a Start-Up with Your 401(k): The Risks
The most obvious risk in financing your business with your retirement funds is, if for some reason your business fails, not only have you lost that business, but possibly a significant portion of your retirement nest egg.
So betting the whole farm on that Krispy Kreme franchise may not be the best way to go.
“I think any prudent investor would want to diversify their risk,” says David Nilssen, co-founder of Guidant, which has rolled over more than $2 billion since 2003. “One of things we talk about with people is that, while they can move up to 100 percent of their retirement funds into the new plan, it’s up to them to determine whether that’s a prudent investment.”
But that’s basic business considerations there. With this particular kind of financing option, there are some very specific operational risks.
A major point to remember is that the business you fund can’t be a hobby business, says Nilssen.
“They need to make sure they’re running an operating company,” Nilssen says. “In the internal revenue code, there is an explicit exemption for people to invest in an operating company.”
In this context, an operating company is one engaged in the sale or exchange of a product or service.
“If you’re going to make an investment, it needs to be a going concern,” according to Nilssen. In short, aspiring absentee owners need not apply.
You also need to make sure that if you’re buying a business, it’s being fairly valued. If you spend $100,000 on a business that turns out to be worthless, there could be penalties and recognition of income that apply, says O’Donnell, even though it was you that got snookered.
For this reason, some people argue that buying a franchise is the best way to use this type of financing. “It’s easier to value a franchise than a business that’s never been run before,” O’Donnell says.
But the place you most risk drawing the attention of the IRS and running afoul of its rules is your salary.
“With any corporation, as long as you have a C corporation, the IRS wants you to pay dividends,” O’Donnell says. “So if you’re paying yourself a huge salary, and you’re avoiding the payment of dividends, the IRS is going to look at that.”
Nilssen says the IRS isn’t the only thing to worry about when it comes to setting your own salary. People who set their own salary “could effectively bleed the investment of the 401(k),” he warns.
To mitigate that risk, Guidant advises that people don’t take a salary out of the proceeds of the retirement fund’s investment. Rather, the salary should come out of future operating revenues. Additionally, Guidant recommends that would-be business owners get a third party, such as an accountant, to tell them what someone in their line of work, in their area of the country pays themselves.
Dig Deeper: Is This a Smart Way to Get Funding?
How to Finance a Start-Up with Your 401(k): Who Is the Best Fit
Nilssen admits that when people hear about this strategy of essentially taking a tax-free distribution of retirement funds to fund a start-up a lot of them say, “Oh no, this is going to attract the wrong kind of people.”
But given the considerable risks, it’s not for the faint of heart or those without business experience.
On the topic of whom this strategy makes the most sense for, O’Donnell says, “As in everything else, the wealthy do better.”
Guidant’s demographics appear to bear that out, as the average balance of the 4,500 rollovers it’s performed is $176,000. The firm also advises that people with a retirement balance of less than $35,000 simply take the distribution and associated penalties.
The appeal of the 401(k) financing strategy is pretty obvious in this economic climate – a bad small business-lending environment, lots of people with business skills in the unemployment line, a way to seize control of your retirement funds without penalty – but it truly is a matter of betting your future on the present. Make sure it’s an educated bet.
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