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ROBS what does it mean for Retirees?

Want to quit the rat race and start your own business? Or maybe you've lost your job and are eyeing franchise opportunities?

If funds are limited and credit is tight, you might consider using what's left in your 401(k) to start a business or a buy a franchise.

Yes, it is possible. And proponents tout a method known as "a rollover as business startup" -- or ROBS -- as a tax-friendly way for budding entrepreneurs to tap their 401(k) accounts.

"This is clearly a permissible type of investment, permitted by the IRS code," says Leonard Fischer, founder and CEO of BeneTrends, a financial services company specializing in ROBS located in North Wales, Pa.

But not everyone is sold on ROBS. In fact, some people maintain a ROBS is fraught with dangerous tax pitfalls.

"(A ROBS) strategy sounds amazing ... it all sounds too good to be true because it is," says Jeff Nabers, CEO of Nabers Group and founder of the IRA Association of America, a trade organization.

Starting up a business using this strategy immediately raises suspicions with the IRS, Nabers says.

"Anyone who (does a ROBS transaction) puts a target right on their back: 'Audit me,'" Nabers says.

ROBS 101

ROBS plans are touted by franchise sellers all over the Internet and arranged by investment firms specializing in this practice.

ROBS firms charge a fee to walk clients through the process of creating a C corporation. The new corporation starts its own 401(k) plan, which must offer employees the option to purchase stock in the company. The new business owner then rolls over funds from an existing 401(k) into the newly created corporation's plan.

Because the assets are moved from one tax-exempt vehicle to another, business owners avoid taxes and penalties.

The sole participant in the plan (e.g., the owner of the new company) can then direct the investment of the 401(k) account balance into a purchase of employer stock in the new corporation. The transferred funds are used to either purchase a franchise or fund the new business -- essentially creating tax-free working capital.

Guidant Financial Group of Bellevue, Wash., has helped clients tap a total of $1.5 billion in 401(k) funds since the firm opened its doors in 2003. A large percentage of these clients use their funds for entrepreneurial ventures.

David Nilssen, CEO of Guidant Financial, says a major benefit of the ROBS approach is that clients start out a business relatively debt-free, increasing the chances of being profitable sooner.

"Profits made can be funneled into growing the business rather than paying off debt," he says.

Too good to be true?

However, others -- like Nabers -- warn about the dangers associated with ROBS.

Martin Hauptman, an attorney specializing in Employee Retirement Income Security Act, or ERISA, law, says the ROBS approach may sound simple. However, it is actually a complicated process fraught with the potential to lose your whole retirement savings -- and then some -- to the IRS.

A ROBS may be legal, but it operates in a grey area of IRS codes and regulations, says Hauptman, principal with the law offices of Hauptman & Richmond, PA of West Orange, N.J.

To keep a ROBS transaction legal, the business owner must heed a slew of IRS regulations and avoid making certain prohibited transactions, Hauptman says.

The penalties for not complying with the rules are staggering.

For example, if the IRS determines the deal is a prohibited transaction, it can trigger excise taxes.

"If you run afoul of these prohibited transactions, you can run up 110 percent -- or more -- in penalties," says Hauptman.

Hauptman has helped guide clients through using the ROBS method. He says he is careful to construct plans that work within IRS regulations.

ROBS deals must be done very carefully and no two cases are exactly the same, says Hauptman, who recommends first contacting an attorney who is well-versed in ERISA law before venturing into any ROBS deals.

"I wouldn't recommend this as a do-it-yourself project, and it's not for the faint of heart," Hauptman says.

Read more: http://www.bankrate.com/finance/money-guides/small-business-robs-risks-retirement-1.aspx#ixzz3JjgAxlpD 
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Every time you click on an external link, you may be leaving the NCCU web site and linking to an alternate web site that is not operated by NCCU.*

Every time you click on an external link, you may be leaving the NCCU web site and linking to an alternate web site that is not operated by NCCU.*

Every time you click on an external link, you may be leaving the NCCU web site and linking to an alternate web site that is not operated by NCCU.*

Every time you click on an external link, you may be leaving  the NCCU web site and linking to an alternate web site that is not operated by NCCU.*

 

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 Every time you click on an external link, you may be leaving  the NCCU web site and linking to an alternate web site that is not operated by NCCU.*

UIGEA
"The Unlawful Internet Gambaling Enforcement Act (UIGEA) was signed into law in 2006. Its intent is to restrict unlawful wagering via internet gambling sites through blocking payments to finance wagers. Due to this law, Northeast
 Community Credit Union is informing its membership that transaction restricted under UIGEA are prohibited and should not be processed through member/business accounts."
The Basics in Teaching Children About Money

Parents who take the time to teach their children about money will be doing their children a great service. As a parent, it is important to look back on your youth and think about how your parents taught, or did not teach, you about money. Then think about what you would like your child to know about money. There are many different ways you can go about teaching your child about money. What they learn from you will most likely follow them the rest of their lives.

Teaching children about money can provide life-long lessons of responsibility. For example, if a child spends all his or her money on soda and candy, he or she might not have enough left over for an afternoon out with friends. 

 

This scenario could have two endings. First, the child receives money from you to cover the expense for the outing, or second, he or she talks with their friends about doing something that does not require money. This might sound harsh to not give up a few dollars so your child can have an afternoon out. However, take a look into the future. If your grown-up children, spend all their money on luxury items (cars, trips, music, etc.) they may find themselves short on money for a house payment, tuition, or an insurance premium. The consequences then will be much more severe.

Remember each child is different and may require a different approach to ensure that learning is successful. There are many different ways to help children understand money. This can be done through an allowance, budgeting, and teaching them different aspects about finances such as savings and credit.

 

10 common car-buying mistakes

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In the market for a new set of wheels? Before you step foot in a dealership, arm yourself with these tips. If you don't, you could be taken for a ride.

By Forbes.com

With today's price cuts, cash-back offers and promises of ultra cheap financing, it might seem like now is a great time to buy a new car. But don't break out your checkbook just yet. Take the time to do a little homework first.

Many car-buying mistakes are quite common, say auto industry watchers. To identify those errors, we asked for advice from experts at Edmunds.com, AutoPacific, J.D. Power http://images.intellitxt.com/ast/adTypes/2_bing_11pxw.gif and Associates and AAA. They gave us their best advice for navigating what can be a confusing path to buying a car.

They also told us that most dealers are honest, reliable and hardworking local businessmen and women, but that there are some simple precautions every consumer should take before purchasing a car:

1. Talking too much. Three things to never say on the lot: "I need this car now" (desperation breeds price inflation); "I love this car" (emotions make you vulnerable); and "This is how much I can afford to pay per month" (once dealers know how much you want to pay per month, they'll find other ways -- through fees, warranties and financing -- to make up the difference between that payment ceiling and how much they must make on a sale. Talk about the absolute price of a car, not the monthly payment\ http://images.intellitxt.com/ast/adTypes/2_bing_11pxw.gif

2. Not doing your research. Walking into a dealership open to any ideas the salesperson has is a bad idea -- it makes you vulnerable to impulsively buying something you don't need, can't afford or ultimately won't want. Determining the market value of your car will help you know where to begin negotiations on the starting price of the vehicle. Use Kelley Blue Book (you can check Kelley values on MSN Autos here), the NADA Guides research center, Cars.com, AutoTrader.com and Edmunds.com to find the true market value and the expected residual value of the car you want.

3. Not being realistic about what you need. Before you hit the showroom floor, take a hard look at the kind of driving you do. Don't assume you need a brand-new car, and consider keeping a driving journal for a week, or even a month, to chart exactly when, where and how far you drive each day. Then buy a vehicle according to those needs -- not aspirations, like thinking "maybe someday we'll need to tow a boat, so I need a truck with three-ton towing capacity."

4. Leasing a car because you can't afford the down payment. Lease payments, especially for luxury cars, don't require a down payment and are often cheaper per month than what it costs to buy the car outright. But they don't always pay off. You've got to determine if having a new car every two or three years and with  no down payment-- but no ownership and no stake in the residual value -- is more important than long-term cost savings and ownership of a vehicle you will eventually pay off.

5. Assuming you'll use the dealer's financing. Instead of going though the dealership, arrange for financing at your bank or credit union. And choose the shortest-term car loan you can; long-term loans coax people into buying cars they can't really afford by stretching out the payments over such a long period that the car is almost fully depreciated by the time it's paid off.

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6. Buying at the beginning of the month. Dealers don't offer their best deals or incentives until the end of the month, when they realize how close (or far) they are from hitting monthly sales goals. So if you can, wait it out.

7. Buying at the beginning of the year. Dealers have less incentive to give you a great deal at the start of the year, when their inventory is brand-new and they have 12 months to hit annual sales targets. But in December, they'll have to clear out old stock in time for the new model-year cars to hit the showroom. That's when you should buy.

 

8. Discussing the trade-in deal during the new-car negotiation. Be honest at the beginning that you may want to trade in your old vehicle -- but keep the new-car purchase discussion and the trade-in value discussion separate. If the purchase and the trade become one big transaction, it's easier for the dealer to fudge on how much you actually pay for the new car.

9. Assuming a hybrid is "greener" than gasoline or diesel. Hybrids use less fuel than gasoline-powered cars of the same model, but they don't always offer huge gains. The $38,340 Chevrolet Silverado Hybrid in the HY2 four-wheel-drive crew cab trim package delivers 20 miles per gallon city and highway, while the all-gas $20,850 Silverado 1500 four-wheel-drive crew cab work truck gets identical highway mileage (granted, it gets a significantly lower 14 mpg city). Smaller engines, like those found in Ford's $28,950 EcoBoost-powered Flex, offer better fuel economy and fewer CO2 emissions compared with larger engines.

10. Visiting only one dealer. Don't hesitate to walk off the lot if a dealer can't meet your terms or expectations. The more you know about the options one dealer is offering, the stronger your negotiating position with another. If you live in a small town with just one showroom, call a dealer in the nearest metropolitan area to get a quote (it'll most likely be lower than in your rural area) and then see if your local guy can meet it.

This article was reported by Hannah Elliott for Forbes.com

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