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April 23, 2021

How To Set Execs' Pay In SPACs Without Breaking A Sweat

Law 360

Executive compensation attorney and Atlanta partner Sue Stoffer discuss with Law 360 the growth in popularity last year of special purpose acquisition companies, or SPACs, partly due to a new strategy for investor-founders touted by financial advisers: investing in founder stock using money from a Roth individual retirement account.

"It makes sense from an investment standpoint if you do it, because anything you invest in with your Roth IRA, your earnings are tax-free, which is phenomenal," Stoffer said. "If you do a successful SPAC, you'll never get taxed on those earnings."

But this strategy carries a key risk that investor-founders should familiarize themselves with before using, she added.

"What I caution my executives is: Before you do the Roth IRA stuff, just stop for a second and make sure you're not walking into a prohibited transaction," she said.

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