A Rollover as Business Startup, more commonly known as ROBS, is a funding strategy that allows you to take existing qualified retirement funds and turn it into ready cash for your business.
While the process isn’t complicated, there are complexities with the initial set up and ongoing administration that, if not handled correctly, could land you in hot water and owing taxes, penalties, and fines.
Fortunately, there are funding providers with expertise in ROBS that can keep you and your plan in compliance with the IRS/DOL regulations. This article will share some of the most commonly asked questions about ROBS funding, along with the best answers to help you decide if using your 401(k) for business funding is the best solution for you.
Most Common ROBS Funding Questions
1. Am I eligible for ROBS funding?
There are three primary requirements that you must meet to qualify for ROBS funding:
There are a few more stipulations within each of these points, so consult your ROBS funding team to find out more.
2. How much should I invest from my existing retirement plan?
Well, the basic answer here is: How much do you have and how much do you need? There is no minimum required amount to roll to your ROBS plan. However, there are costs associated with this process, and ongoing administration to maintain compliance. If you only need a small amount (say, less than $50,000), and if your business doesn’t have any full-time employees, you might want to consider another option.
3. How does the ROBS funding process work?
There are 4 key steps required to convert your 401(k) funding to a ROBS account:
STEP 1: SET UP A C CORPORATION
The process begins with establishing a new corporation using the proper legal structure to support the establishment and operation of the company's qualified retirement plan.
STEP 2: DESIGN A NEW QUALIFIED RETIREMENT PLAN
To avoid early withdrawal penalties and preserve tax-deferred status, a new retirement plan is created for which you'll move your existing funds. We will customize your plan, taking into consideration the needs of your business and employees.
STEP 3: TRANSFER YOUR RETIREMENT FUNDS INTO THE NEW PLAN
After the corporate retirement plan is in place, you'll need to identify an appropriate plan custodian. This custodian creates the new account according to the plan's design and specifications. If you're rolling over funds from a 401(k), your plan custodian will work with you to fill out temporary IRA documents, although you will have to initiate the rollover. If funds are being rolled from an existing IRA, your plan custodian will initiate the movement of those funds.
STEP 4: USE THE RETIREMENT PLAN'S FUNDS FOR YOUR BUSINESS
The rollover funds can now be invested in the newly formed C Corporation by purchasing stock in the corporation. The stock purchased by the plan is credited to your account based on your investment decisions. You have the capital to start, purchase or recapitalize your new small business or franchise.
4. How can a ROBS funding provider help?
Benetrends is proud to have a long track record of helping small business owners leverage their 401(k) funding under the ROBS process. But not every ROBS provider is the same. Make certain you ask these important questions:
For the best ROBS funding expertise, look no further than Benetrends Financial. We’ve been doing this work for decades and have a long track record – nearly 40 years - of helping business owners get the cash they need while keeping the plan in compliance. Schedule a consultation today to explore your options.
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Information provided by Benetrends Inc. is not intended to be used as legal or accounting advice, or as the sole basis for investment decisions, nor should it be construed as advice designed to meet the particular needs of an individual investor. Please seek the advice of legal or tax professionals, as appropriate, regarding the evaluation of any specific information, opinion, advice or other content.
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