Bits & Bytes

Using 401(k) Cash To Start A Business

More financial advisors are promoting the use of a tax loophole that lets would-be entrepreneurs start a business with 401(k) retirement funds without incurring taxes or penalties. Typically, the entrepreneur creates a new corporation, sets up a 401(k) plan for it and moves existing 401(k) funds into the plan. This money is then used to buy shares in the new company, thus providing the business with capital while retaining the tax advantages of the 401(k). Without such a rollover, funds withdrawn from a 401(k) are subject to income taxes. A typical transaction involves between $100,000 and $200,000 in retirement funds. Advisors charge about $5,000 for the paperwork, plus an annual fee of $800 or more to run the new 401(k) plan.

Problem with all this is that it’s catching attention from the IRS, which is stepping up audits of such transactions. It’s all perfectly legal, but an IRS spokesman says it’s “open to abuse.”

Investors’ ‘Odd Couple’: Gold and Treasury Bonds

Seeking safe havens, investors have been putting a lot of money lately into gold and Treasury Bonds – even though, typically, these two investment vehicles move in starkly opposite directions. Already this year, $10 billion has been pumped into Treasury bond funds on the heels of nearly $24 billion in 2009. As for gold, net inflows into SPDR Gold Shares exchange-traded fund were $4.35 billion in May, the third highest on record. Late last month, gold closed at an all-time high of $1,248.70 an ounce.

Over a given time period, one of them has to win and one has to lose. If there is a sudden rise in inflation, Treasurys will likely take a beating. But if inflation continues to slow, or turns into deflation, gold will falter. What’s your bet?

Coleman Dispute Is Lesson For Advisors

The ugly family dispute over the remains and burial place of child TV star Gary Coleman should be yet another reminder for financial advisors to update clients’ estate documents regularly, Investment News told its readers last month. Coleman, star of Different Strokes in the 70s and 80s, recently suffered a brain hemorrhage and died after his ex-wife took him off life support. The ex-wife and Coleman’s parents – against whom he won a $1.3 million judgment for misappropriating his money – have been fighting ever since.

“Once you get the lawyers involved, it costs a fortune and becomes a mess,” one financial advisor told the paper. On the other hand, a good estate planning attorney, working with a financial advisor, can prevent family bickering.

Text Messages Are ‘Calls’

Recent federal court rulings have held that text messages are considered “calls” under the Telephone Consumer Protection Act of 1991.

This has profound implications for financial advisors who use text messages for advertising and marketing. They should know that any advertising or marketing text message sent to consumers without their consent is a likely violation, according to Locke Lord Bissell & Liddell, a national law firm.

Mad Dash For Cash

Nearly 70% of investors now have more than 5% -- and more than a fifth, more than 15% -- of their assets in cash, according to an Investment News survey. Under the banner headline, Advisers make a mad dash for cash, the newspaper said advisors started selling positions in the stock market and moving into cash early in May at the first signs of volatility similar to the severe swings of 2008. The paper noted that the challenge for these advisors is knowing when to put their clients’ money back into the stock market.

$2.6 Million Lunch With Warren Buffett

A steak lunch with billionaire investor Warren Buffett brought a record $2.63 million bid on e-Bay. The winning bidder, whose name is kept secret, may bring seven friends to the lunch at the Smith & Wollensky steakhouse in Manhattan. The five-day auction attracted nine bidders. Toward the end, the top offer soared by more than $500,000 in seven minutes of frenzied bidding.

The annual auction is to raise funds for the Glide Foundation, a charity that provides food, health care, housing and job training for San Francisco’s homeless.

Doctors Say 20% of Health Claims Mishandled

One-fifth of all health insurance claims are mishandled by insurance companies, according to the American Medical Association. The doctors’ group says these “processing errors” create billions of dollars in unnecessary administrative costs, slow down payments to doctors and frustrate patients.

Doctors have long complained about what they consider to be excessive paperwork required by insurers.

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