Using a Rollover-for-Business-Startup (ROBS) for your business isn’t difficult, yet it is a complicated process in regard to remaining compliant with IRS guidelines. It is best to choose a ROBS provider that not only understands the process, but has the ability and expertise to answer questions as they arise. Here you’ll find a list of the more common ROBS questions.
Do you outsource or use any subcontractors for retirement plan services?
Benetrends has a full in-house team of industry-certified professionals and DOES NOT utilize subcontractors or outsource our retirement plan services. Other companies do, meaning that without your knowledge or approval, these services could be performed by another company that doesn’t have the same experience, knowledge or credentials.
What exactly is 401(k)/IRA Rollover Funding or ROBS? Is it a new concept?
401(k)/IRA Rollover Funding and ROBS (Rollover as Business Start-Ups) are the terms used synonymously for the process of utilizing retirement plan savings to fund a business. This process is similar to buying stock in a public company, but instead, you’re investing in your own privately held company. While many might believe this is a new concept, entrepreneurs have utilized this method of funding for over 35 years. In fact, the founder of Benetrends, Len Fischer pioneered this concept.
Are there any types of retirement plans that CANNOT be used?
Most retirement plans qualify; however, there are a few that do not, including Roth IRAs; distribution of death benefits from an IRA other than to the spouse; 457 plans for non-governmental agencies. If you’re unsure about whether your plan qualifies, talk to a member of our team.
Are there different types of plans that can be set up?
We don’t believe in cookie-cutter plans, so unlike other providers, we offer our clients multiple plan options. Benetrends helps you choose and manage the best option to meet your needs – from 401(k) plans and Roth 401(k) plans to profit-sharing plans and defined benefits plans.
Can I roll over my 401(k) plan from my current employer?
In most cases, you would need to either use 401(k) funds from a previous employer or be prepared to terminate your employment in order to roll over these funds from your current employer.
Do I have to set up a C-corporation to use this plan?
Yes, it is imperative that your business be set up as a C-corporation, or it would not be considered compliant with the IRS or Department of Labor.
Do I have to use ALL of my retirement savings?
No. You would need to roll over all of your current retirement plan funds into the new retirement plan, but if you’d prefer, you may use only a portion of them to invest in the new company’s stock. Sometimes, clients use a portion of their retirement savings as the capital injection necessary for acquiring an SBA loan.
Do tax advisors, attorneys and CPAs support the program?
The number of tax advisors, attorneys and CPAs who know of and understand The Rainmaker Plan® or ROBS in general has increased in recent years. And, once educated on the statute and process, these financial and tax industry professionals invariably support this funding strategy.
Is it legal?
The Internal Revenue Code and the Employee Retirement Income Security Act of 1974 (ERISA) include provisions that permit individuals to invest their retirement funds in stock in their own companies. The benefits of The Rainmaker Plan® do come with responsibility. For example, it is imperative that a qualified retirement plan is established for the new company, and that it be used and operated as such. Additional requirements apply in order to remain in compliance. And because compliance is essential, it’s important to work with a company that specializes in retirement plan design and services, ensuring compliance both at set-up and continuously year after year.
What are the advantages of this type of funding?
Some of the advantages of this type of funding over other traditional methods (like loans) include:
- It’s tax-deferred and penalty-free.
- You can secure funding fast – sometimes in as little as 10 business days.
- There are no interest payments or repayment of loans.
- It’s debt-free or reduced-debt funding, which means you can significantly shorten your time to profitability and maximize your potential success.
- You can pay yourself a salary from the start (enabling you to pay living expenses from your salary).
- It’s a powerful wealth-building vehicle; as a successful entrepreneur, you can build for the future and protect your profits.
- You can gain cash flow and build equity faster.
- It’s not dependent on your credit score (you still qualify even if you have bad credit or bankruptcy).
What are your fees?
Our fees are very competitive in the industry and are all-inclusive of everything we provide as part of the plan. Like most other providers, we have an initial start-up fee, which covers the setup of your plan and C-corporation, as well as a monthly service fee for the ongoing retirement plan services. While at first glance, some other providers may seem to cost less, when you start comparing apples to apples, you’ll see that other providers charge extra for “add-on” services or don’t provide some of the critical services needed (like audit protection, in-house legal support, business valuation and compliance). We encourage you to reach out to us and talk to one of our funding consultants so we can identify all potential areas of cost savings for you.
What exactly is 401(k)/IRA Rollover Funding or ROBS? Is it a new concept?
401(k)/IRA Rollover Funding and ROBS (Rollover as Business Start-Ups) are the terms used synonymously for the process of utilizing retirement plan savings to fund a business. This process is similar to buying stock in a public company, but instead, you’re investing in your own privately held company. While many might believe this is a new concept, entrepreneurs have utilized this method of funding for over 35 years. In fact, the founder of Benetrends, Len Fischer, was a prominent ERISA attorney who pioneered this method of funding in 1983, calling it The Rainmaker Plan®.
What happens if I get audited?
Our Rainmaker Guarantee with Audit Shield protection ensures that if you follow certain terms and conditions, Benetrends will protect your plan in the rare case that there is an inquiry or audit by the Internal Revenue Service or Department of Labor. In the 40+ years we’ve been doing this, we have NEVER had a plan disqualified.
What if I have more than one retirement savings account?
That is not a problem. You can consolidate all of your retirement accounts into the new retirement plan.
What is the difference between ROBS and a self-directed IRA?
While both programs allow individuals to use retirement funds to purchase a business, there are vast differences in how they can be used and for what purpose. To put it simply, for self-directed IRAs, the purchase has to be for a passive investment vehicle, like a real estate investment. ROBS, on the other hand, entails an active role in the business investment and requires the individual to be involved in the business as an employee.
What is the difference between ROBS and The Rainmaker Plan?
When Benetrends originated this revolutionary method of business funding in 1983, we called it The Rainmaker Plan®. Many years later, the IRS officially coined the term ROBS (Rollover as Business Start-Ups) for the name of this type of funding. Essentially, The Rainmaker Plan was one of the first ROBS plans, before it was named as such.