Deciding how much of your 401K to use for a ROBS (Rollovers as Business Startups) plan involves careful planning and thoughtful consideration. After all, these funds serve as the foundation for your future business and personal financial security. This blog post aims to address the pivotal question, “How much of my 401K can I use for a ROBS plan?” as well as offer some essential tips to help you make the most informed decision.
Understanding ROBS and Your 401K
The flexibility of the ROBS strategy enables you to access either a portion or the entirety of your retirement account funds. Many people opt to roll over slightly more than they anticipate needing, providing an extra financial cushion for emergencies or additional working capital.
However, it’s vital to remember that a minimum threshold typically makes the most sense when considering a ROBS strategy. Generally, we recommend candidates to have at least $50,000 in the retirement account they plan to use for ROBS. But why is this the case?
Assessing ROBS Costs and Feasibility
The costs and fees associated with ROBS services can be prohibitive for smaller amounts. Typically, ROBS service-related costs range between $6,000-$7,000 in the first year, covering startup and administrative fees. For those with funds below the $50,000 threshold, it might be more cost-effective to liquidate the retirement account independently, albeit incurring an early withdrawal penalty and taxes.
However, unique situations might still benefit from a ROBS strategy with less than $50,000. These cases are determined individually, making it crucial to collaborate with a funding consultant to chart the best plan of action.
Working with a Funding Consultant
A funding consultant offers invaluable assistance, helping you navigate the intricate world of ROBS and retirement funding. They will work with you to evaluate your unique circumstances, providing expert advice and guidance to ensure you maximize the potential of your 401K when setting up a ROBS plan.
Conclusion: Making the Most of Your 401K with ROBS
ROBS offers a valuable strategy for leveraging your 401K to start or buy a business. However, to make the most of this opportunity, you need to carefully decide how much of your 401K to utilize. Remember, while it’s possible to access all or part of your retirement funds, consider the costs involved, your personal financial comfort, and seek professional advice. By doing so, you’ll be well-positioned to make the most informed decision about implementing your ROBS plan.
Written by: Sara Vrancik, Funding Consultant at Benetrends Financial