Frequently Asked Questions

DRDA is a full-service CPA firm that has been providing this structure since 2005. We work with our clients and the members of their advisory team to provide education and understanding among all members of the deal. Once advisors have been introduced to the concept and understand the in and outs, these financial and tax industry professionals invariably support this funding strategy.

Some of the advantages include:

1. You will have access to your retirement funds with no tax or penalty erosion.

2. There are no interest or loan repaying on this portion.

3. It’s a debt free funding which means you can significantly shorten your time to profitability and maximize your potential success.

4. You can pay yourself a salary from the start enabling you to cover your personal living expenses as your business gets off the ground.

5. It’s a powerful wealth building vehicle allowing you to build for the future and protect your profits.

6. It’s not dependent upon your credit score – you still qualify for a BORSA Plan if you have bad credit or bankruptcy.

The ability to access retirement funds and invest in privately held businesses has been available since the ERISA law of 1974. People are using this structure every day, all across the country to buy, start, or add funds to their active businesses.

Self-Directed IRAs are for passive investments only. You cannot operate a business with a Self-Directed IRA. You can use IRAs in a BORSA™ Plan but they must first roll into the 401k which has the provisions which allow investment into the privately held company.

The BORSA™ plan follows the same laws as any typical employer’s 401k plan. The program is for the benefit of the employees of the corporation and will work the same as what you’ve seen in the past. This plan contains specific provisions that allow the investment into company stock using rolled in funds.

Yes, by law you are required. This is good news for you. According to surveys in the Human Resources sector attracting and retaining great employees is one of the biggest challenges for business owners. Offering a retirement plan is a big benefit to the employee and may help with employee retention.

The way this plan is written, stock in the company can only be purchased with rolled in dollars. Once an employee meets the eligibility criteria then they can become participants in your plan. One of the standard stock options will not be stock in your company. The only way a participating employee can buy stock in your company through the plan is by rolling in prior employer retirement funds like you did and use those funds to buy stock in the company. Although this is available it’s a highly illiquid form of stock in a privately held company. We’ve not had any participants purchase stock in the company in this manner.

No. You can roll in as much or as little as you would like. You could roll a portion of a plan, multiple plans, or more than one person could roll in. None of this affects the fee or the timing.

This structure is based in the Internal Revenue Code and the ERISA Law of 1974. These bodies of law provide provisions that permit individuals to invest their retirement funds in stock of their own companies. The benefit of a BORSA™ plan does come with responsibilities. DRDA will help you understand and maintain the compliance aspect of this structure.

Our fee is $4,995 for us to provide this structure to the client turnkey including all filing fees. We will charge your company $139/month for the on-going compliance elements. Be sure to check with your consultant to understand these costs.

The BORSA™ Plan allows you to combined a variety of retirement plans into one. How many plans are being access or how many people are rolling in does not affect our fee. Perhaps the husband and wife both want to roll in – we just need one BORSA™ structure.

DRDA CPAs & Business Consultants is the only full-service CPA firm offering this structure nationally. As CPAs we are uniquely poised to be of assistance to the entrepreneur even after this funding structure is put in place. From things as simple as QuickBooks training to Tax or Strategic Planning, DRDA has the experience and depth of resources to help the entrepreneur throughout the life cycle of the business. This funding method requires on-going compliance. As CPAs that’s our wheelhouse and we are going to help you understand and manage those compliance points going forward.

Most retirement plans qualify. These include 401(k), 403(b), 457, Annuity Plans, Cash Balance Plans, Defined Benefit Plans, Employee Benefit Plans, IRAs, Profit Sharing Plan, Thrift Savings Plans, Rollover IRAs, SEPS and SIMPLE IRAs. The notable exceptions are ROTH IRA, ROTH 401k, or a non-spousal inherited IRA. Generally, the funds must be available – meaning prior employer.

The legal maximum limits in 2019 are $19,000, with the catch up provision (if you are 50 or older) at $6,000. This is also a Profit Sharing Plan which gives you an additional $28,000.

Almost any type of active business will qualify. Check with your consultant to verify your business would be suitable.

Absolutely. They can invest by rolling in retirement funds or buy stock directly in the company with hard dollars.

In most cases you would not be able to access those funds until you have terminated your employment. There are some instances where this can be done. It’s best to check with your consultant.

DRDA CPAs & Business Consultants will help you understand and manage compliance moving forward. We offer the BORSA™ Guarantee that protects you if the IRS tries to deem this a prohibited transaction. As long as the client is allowing DRDA to do the annual reporting on the plan and otherwise follows your guidance on compliance then we’ve got you covered.

This structure requires a C Corporation as the basis. It’s because of the types of shareholders there will be in this arrangement. The 401(k) plan which is an entity will become a shareholder of the C Corporation. An LLC has members, so that won’t work. Only living breathing people or sub-chapter S trusts can be shareholders in an S Corporation. A C Corporation allows another entity (in this case the 401(k) plan) to be a shareholder.

Whoever rolls funds into the BORSA™ Plan and then invests funds into the C Corporation must be a W2 employee of the C Corp. This salary and also 401(k) contributions are pre-tax expenses for the corporation – reducing it’s tax liability. The salary will be picked up on the individual’s personal tax return and taxed there.

As this is not a loan, there is not required timeline for payback. You can pay back the investment from your retirement plan at any time you choose while you own your business. If you choose to pay back the funds while you own your business you would do it through a stock buy-back. If you sell your business, the proceeds from the sale are returned to your retirement plan.

Anyone who rolls into a BORSA™ plan must be a W2 employee and draw a W2 salary. As the owner of the business you are allowed to set that that salary will be. If you need assistance in understanding what an appropriate salary would be contact your consultant.

The BORSA 401(k) plan currently holds shares of your non-publicly traded company. It was initially used to fund your business but now the time has come to start your distributions from the 401(k). There are several choices you have to remove the shares from your 401(k) plan.

  • Your company can purchase shares from your 401(k) as needed. They can purchase the amount you need for required minimum distribution (RMD) each year if you want to spread the purchases out over time. Or the company can purchase all the shares at one time.

  • The transaction for these purchases are as follows:
    • Debit Treasury Stock account (equity account) for the amount of purchase
    • Credit to cash for the amount of purchase

  • There are no gain or losses to report as the funds are being returned to the 401(k) which is a tax deferred account

  • You will need to reissue your stock certificates if the company only purchases some of the shares as opposed to purchasing all the shares. After the new certificate is issued you can void the old stock certificate.

  • Keep in mind that if you purchase some shares each year, the value of the shares will fluctuate based on the annual valuation

  • This is like taking a distribution from your retirement account only in stock and not cash.

  • You will need to report the distribution on your tax return at fair market value (FMV)

  • The BORSA plan will need to issue a 1099-R for the distribution from the 401(k) plan

  • You can still have your company buy the shares from you individually at any time, now or in the future. You may have a gain or loss when this happens but your basis in the stock will be what you reported on the 1099-R

  • If the shares are in the 401(k) plan then treatment will be the same as number 1.

  • If the shares are owned by you individually via distribution then treatment will be the same as number 2.

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DRDA
CPA"s & BUSINESS CONSULTANTS

DRDA is a proactive CPA firm offering guidance and support so you can achieve your business and financial goals.

1120 Bay Area Blvd,
Houston, TX 77058

Phone: 281-488-2022

Email: info@drdacpa.com

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