Posted on January 4, 2023
It may sound amusing that there’s a unique funding option under the acronym ROBS, but Rollovers-as Business-Startups can actually be an advantageous strategy to finance the purchase of a franchise or small business. Especially if your candidacy for business ownership doesn’t quite align with many of the more traditional financing routes. Or, if you simply aren’t interested in starting your business in debt. Though there are still many entrepreneurs who remain unaware, using your retirement funds to launch a new business venture can be an innovative solution for making your business ownership dreams come true.
Let’s review the basic facts – what ROBS is, and how it works.
ROBS Defined
Rollover-as-Business-Startups (ROBS) is a financing plan that allows you to draw funds from your own hard-earned retirement account to finance the purchase of a new business venture. This innovative funding option was the brainchild of Benetrends founder Len Fischer, who created the company’s flagship program under the “Rainmaker® Plan,” over 40 years ago. To date, it’s helped an estimated 30,000 entrepreneurs secure the funds needed to launch their new business opportunities. Provided you follow the steps properly, you can access these funds without income tax or early withdrawal penalties – thereby beginning your new business venture cash-rich and debt-free.
How ROBS Works
Step 1 – Create 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 – Set Up a Retirement Plan for Your New C Corp.
To avoid early withdrawal penalties and preserve tax-deferred status, a new retirement plan is created for which you’ll move your existing funds.
Step 3 – Roll Your Existing Funds into the New Retirement Plan
If you’re rolling over funds from a 401(k), your plan custodian will work with you to fill out temporary IRA documents. 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.
There are certain things to remember when you participate in the ROBS funding option. First and foremost, these funds are not a loan and do not require periodic payments. And they aren’t subject to income tax or other penalties. The qualification process is easy, and this option can be advantageous for candidates who are unable to secure funding through traditional lending channels. Lastly, because of the way ROBS funding is structured, you can still continue contributing funds to a tax-advantaged retirement account as your business grows.
That’s not to say that ROBS isn’t without its drawbacks, namely putting your retirement savings at risk were the business to fail. But just the same – if your business fails with a traditional loan, you’ll still have existing debt to service. As with any major financial decision, consult with your professional legal and accounting service providers to make sure that ROBS is a suitable option for your particular situation.
About Benetrends
Benetrends is the authority in franchise and small business financing and is acclaimed for its Rainmaker Plan that enables entrepreneurs to use their qualified retirement plan to purchase, or recapitalize a business or franchise, tax deferred and penalty free. Benetrends originated 401(k)/IRA rollover funding, which has helped nearly 30,000 entrepreneurs in the last 40 years. In addition, Benetrends provides advice on a comprehensive suite of small business solutions including SBA Loans, Securities Backed Lines of Credit, Equipment Leasing, Commercial Insurance, Individual and Group Healthcare, Payroll Services and more. If you’d like to know more, simply reach out and contact us today!