Upon retiring, many corporate executives and other employees decide to start a second career. In some cases, these people roll over funds from their corporate retirement accounts to an individual retirement account (IRA). The IRA then purchases a business that the person runs. The goal, of course, is to avoid currently paying tax on the funds from the corporate retirement plan. There are business brokers that advocate this strategy.
Business owners frequently plan to fund their retirement with the proceeds from a sale of their business. However, they frequently fail to take the steps necessary to maximize the after-tax proceeds from the sale. One such step relates to closely-held corporations and involves making an “S election” for tax purposes.