Use of 401k funds to start a business

akersmith

My spouse will soon terminate employment (electively )to focus on our own business. We would like to roll the 401k funds from that employer into an ERSOP or ESOP. As a C-class corporation, we are under the impression that we could then use those funds as working capital for the business. Does anyone know if we can use those funds exclusively for salary? Is there an issue if there is only one employee drawing salary, and that one employee also happens to be the owner of the business?

We have found information where the IRS issued letters to S-class corporations warning against single-participant ESOPs where the participant is the owner. But again, the business is a c-class corporation, so we don't understand how the laws and regulations might differ, if at all.

Lastly, would a c-corporation be taxed on this rollover as corporate income?

I have included two links to ERSOP plan administrators below, and we would appreciate your input and insight. Thanks, in advance!

http://www.ersop.com/ersop_intro.htm
http://www.benetrends.com/RainmakerPlan/RainmakerPlan.html

Murphy_The_Cat

Am i correct in thinking this is a question that relates to the USA ?

If it is i'm sorry but my knowledge of American business law is zero.

If its a British question i've just learnt lots of new words (ersop, esop)

Either way i'm sorry that i can't help but good luck with your venture.

MTC

dunstonh

Yep, that question relates to US and not UK.

akersmith, this website does not cater for those outside of the UK.

Finishrich

Welcome to MSE Akersmith, It's very unlikely that your question will be answered here as it's a UK based website, and most of us have difficulty in understanding our own UK tax system, never mind the US one. If you have access to an independent financial advisor I'm sure they would be able to point you in the right direction or even just calling the IRS I'm sure they would offer some help.

Debt_Free_Chick

Akersmith

Sorry we can't help, but I'm sure you'll get a response on the Discussion Boards at

https://www.fool.com

Or try these sites (I used to have to deal with US pensions for a UK company, with US subsidiaries)

https://www.401exchange.com
https://www.401helpcenter.com
https://www.401k-site.com
https://www.mpowercafe.com

Hope these are of some help