Retirement Funds to Buy a Business…NO WAY!!….But Maybe?

Post Date: December 24, 2021
Retirement Funds to buy a business….NO WAY!!....but maybe…

Written by Kelly Krueger, Senior Consultant at Benetrends

Have you ever?
  • Had a job with a retirement plan?
  • Contributed to a company retirement plan?
  • Changed jobs and rolled over your retirement funds into the new company’s plan?
  • Purchased employee stock?

If you’ve done any of these, then you already understand the basic principles of a ROBS, or Rollover as Business Startups.  The difference is in the way the retirement funds are used.

With your traditional 401(k)/IRA, you are investing in your future wealth by growing your savings through contributions.  When you reach retirement age, you can tap into your funds and any pre-tax contributions will then be taxable.  And if you work for a company that offers stock, you have the option of purchasing shares.  Should you want or need to tap into your retirement funds, you may be able to, provided the company allows withdrawals (i.e., loans, in-service or hardship distributions); however, the monies will be subject to taxes and possibly early withdrawal penalties that can be upwards of 40% of the distribution.

A ROBS strategy, on the other hand is an investment in you and your business now. Qualified retirement funds are rolled into a retirement plan sponsored by a newly created C-Corporation – your company.  These funds are used to purchase stock in the company and the proceeds are then used for the business.  With this strategy, there are no loan repayments, taxes, or penalties.  There are guidelines which must be followed, and the plan must show permanence, which can be achieved by contributing to the retirement plan which in turns rebuilds your wealth for the next adventure – your retirement.

Benetrends is the pioneer of ROBS funding, helping thousands of entrepreneurs launch their business dreams for nearly 40 years. To learn more, schedule a consultation.

This article first appeared in Pillars of Franchising magazine.