Frequently Asked Questions –
Just ask and we’ll answer.

Why do business with CatchFire Funding?

We’re passionate about helping you build a great future for yourself and your family while helping youprovide opportunities, employment and support for others in your community. Like many of our clients, you may well find that starting and building a successful business is your path to financial freedom and a better lifestyle.

Our goal is to provide you with the financial education, programs and resources that minimize your risk and maximize your returns, both now and into your retirement. We want to help you not only fund your business and manage your program to meet all the basic requirements of operating a retirement plan, but to maximize your total business success.

Is the self-directed 401k different from 401k programs I have already participated in?

Our retirement program follows the same laws as the retirement programs used by large companies. The program is there for the benefit of the employees and is the same, or very similar, to what you have experienced before. In many large corporations, the 401k program allows you the option to purchase company stock, make investments in mutual funds or purchase stocks of other companies on the open stock market. This program allows you, and all eligible employee of your corporation, to make the same types of investments with your retirement funds.

Is this legal?

The laws governing 401k retirement plans were put into place in 1974 with the establishment of ERISA – the Employee Retirement Income Securities Act. Just as large companies, like Hewlett-Packard or IBM, are able to utilize Employee Stock Ownership programs for the benefit of their companies and their employees, so too can small companies create the same benefits through a Self-Directed 401k There are important requirements that must be met to set-up and maintain your plan. These include, but are not limited to, ensuring that you are operating a viable business, that you keep appropriate records and that you give all eligible employees the opportunity to invest in the retirement plan. These requirements are easy to follow. Your CatchFire Account Manager can give you more information with just a brief phone call to our office at 1-877-702-2040.

Can I offer this retirement plan as a benefit to my employees?

Yes. By law, any employee that meets the eligibility requirements must be given the option to participate in the 401k plan.

This is very good news for you. According to surveys in the human resources industry, attracting and retaining great employees is one of the biggest issues facing small and medium businesses today. A classic human resources study documented that excellent employees are over 2,000 times more valuable than poor performing employees.

Losing a really good employee for any reason is painful. You need to give yourself every advantage to make your business successful. Being able to offer a retirement program as a benefit to your employees can give you that critical edge in attracting and keeping the people that can help you achieve your dreams.

Will employees be allowed to invest in company stock?

The short answer is yes, absolutely. Your employees will be given a variety of investment options, including investing in the stock of your company. Specific procedures are provided with your 401k plan to allow them to invest in company stock, if they desire to do so.

The longer answer is that you need to be aware of two things. The first is that your employees need to be offered the same investment options that you as a company official have access to. This includes the ability to invest in your company’s stock, if they wish to do so. Other investment options our clients often use are the stock market, mutual funds, or any other investment opportunity offered by companies such as Fidelity Investments, Charles Schwab or AXA Equitable.

The second thing that you need to be aware of is that your employees cannot be required to purchase your company’s stock, if they do not wish to do so. Your employee’s retirement investment decisions must be totally up to them to make of their own free will. No one from CatchFire Funding, or any official of your company, is allowed by law to influence in any way the decisions of your employees as to how they invest their retirement monies.

What types of retirement funds qualify for your program?

The types of allowed plans are: 401k’s, 403b’s, 457’s, Annuity Plans, Cash Balance Plans, Defined Benefit Plans, Employee Benefit Plans, IRA’s, Money Purchase Plans, Profit Sharing Plans, Thrift Savings Plans, Rollover Plans, SEP’s and SIMPLE Plans. The types of plans that are NOT allowed are: Roth 401k’s, Roth IRA’s and IRA’s that are inherited by anyone other than the spouse of the deceased.

Why do I have to use a C-Corporation if I want to have a self directed 401k?

A C-Corporation is the only legal structure that is eligible for investment with the retirement monies from a self-directed 401k. Other legal structures, such as S-Corporations or LLC’s, do not meet the legal eligibility requirements necessary for this type of program.

But don’t I have to deal with double-taxation with a C-Corporation?

For tax purposes, owners of a corporation that work for the corporation are treated as employees. Employee’s salaries and 401k contributions are pre-tax deductions to the Corporation, so the Corporation does not pay taxes for these. The employee pays the taxes on their salary and contributions only once, either for the current tax year in the case of salaries or when they use their retirement funds later or for other reasons. Paying taxes when you take a distribution from your retirement plan can never be legally avoided. A qualified tax professional can mitigate any additional taxation on dividends paid by the Corporation.

Is there any limit on how much of my retirement funds I can invest in my business?

You can invest all, or only a portion, of your retirement funds into your business. Contact your CatchFire Account Manager, and he or she will inform you if there are any restrictions on using any portion of your retirement funds.

Can I stay employed for now and still roll over my retirement funds?

In most cases, you need to have terminated your employment with your current employer. In some cases, an employer will allow you to rollover funds if you are about to terminate your employment. To find out your employer’s requirements, please check the Summary documents for your current plan, or check with your employer’s Benefits administration personnel.

Am I required to pay my retirement funds back?

You can pay back the investment from your retirement plan at any time you choose while you own your business. There is no required timeline for such a payback. If you choose to pay back the funds while you own your business, you would do this through a stock buy-back. If you sell your business, the proceeds from the sale are returned to your retirement fund.

How much salary should I pay to myself?

In order to use a self-directed 401k plan, you will need to be an employee of your business. By law, you are required to be paid an appropriate salary for your services. If you are unsure what would be considered an appropriate salary, you can check for information on websites such as Salary.com, or consult a compensation specialist in your area. If you are purchasing a franchise, you may consult with your franchise representative or other franchisees in your area. Salaries are required but shouldn’t be paid to disqualified individuals until the corporation is generating revenue.

Is this a complicated process?

Not at all. We can educate you on the process in less than an hour. Most of our clients have the use of their funds in three weeks or less. There is a minimal amount of paperwork and we’ll walk you through the actions you need to take to transfer your funds.

Does CatchFire make a commission or provide investment advice for my retirement funds?

No and no. We work only on a flat fee basis, no matter how large your retirement funds or your company are. We do not offer or advise on investments, as that would be considered a conflict of interest. Many of our clients utilize other investment firms, such as AXA Equitable, Fidelity Investments or Charles Schwab to invest the portions of their retirement funds that are not invested in the stock of their own companies.

What type of business must I be in to use a self directed 401k?

Almost all types of businesses qualify to use a self directed 401k. There may be some restrictions or prohibitions if a significant portion of your business involves lending or investing capital. Please contact your CatchFire Funding Account Manager if you would like further clarification regarding your business or franchise.

Can my spouse or family members invest in my company?

Other people can invest in your business. There are two ways for them to do this. If they will be working as employees of your company, they can roll their retirement funds into your new retirement plan. You can also allow others to invest in the stock of your company by purchasing stock directly, without going through your self-directed 401k plan. Anyone can purchase stock directly from your company. They do not have to be employees of your company to purchase stock directly.

How much can I contribute each year to my 401k?

The maximum amount that you can contribute changes every year. For the current tax year (2015), you can personally make a maximum deferral contribution of $18,000. If you are over the age of 50, you can make an additional catch-up contribution of $6,000. If you choose to have your company make additional employer contributions, then the IRS allows you to save a maximum of $53,000 per tax year.