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A Rollovers as Business Start-ups (ROBS) strategy for starting or buying a business has numerous benefits, including ready access to cash flow and
ROBS – or use funds from their existing personal 401(k) or other retirement accounts as capital for buying a business. In addition to creating cash flow and minimizing the use of debt, ROBS are an attractive source of funds unlocking value from an individual’s retirement savings to fund a business, what are the tax advantages that make considering a ROBS strategy worthwhile? First, there is the aspect of tax deferral. Financing through ROBS avoids the early withdrawal penalty normally incurred when funds are withdrawn from retirement savings prior to retirement. When you use the capital from your 401(k) to fund a new income taxes or penalties, more money is available to go into the business, thus maximizing your available capital. In addition to increasing capital efficiency, you avoid loan obligations because ROBS is not a debt product. It’s simply accessing the equity you already have built up in your retirement plan, so there’s no monthly repayments or interest like you would incur with a loan. Accessing Business Capital Through ROBS Here are some points to remember about how the flow of money works when using a ROBS strategy: The new business entity to be funded must specifically be established as a C-Corp. After a new 401(k) or profit-sharing plan is the business advisory space and how to implement a ROBS strategy. For a consultation on your business plans and objectives, please contact us at 770.740.0797 or email info2@SJGorowitz.com.
There’s a huge demographic shift happening in the United States, as Rollovers as Business Start-ups. ROBS are rollovers that utilize your existing 401(k) retirement funds to finance a new or existing business without incurring early withdrawal penalties or buy a business, and you may not want to take on debt. The ROBS mechanism is a way to utilize your 401(k) savings to access the capital you need without incurring early withdrawal penalties. Advantages of ROBS Advantages of the ROBS financing method include: Debt-free financing. With ROBS, you’re not borrowing money to put as a payment, a down payment or principal payment on a business. ROBS funds are equity you already have that ordinarily can’t be accessed because of the distribution rules of retirement plans. Preserved cash flow. Using saved capital eliminates concerns about high interest rates that can hinder business growth. Improved business success rates. ROBS may contribute to a business’s success compared with traditional methods of financing. Owners using ROBS are fully vested and perhaps more incentivized to make the business work. In addition, there’s no impact on personal credit. Steps to Using ROBS to Fund a Business Here’s how ROBS work and how to start the process. The first step is establishing a retirement plan like a 401(k) or profit sharing plan for the acquired C-Corp business. The third step is rolling over funds from your personal 401(k) into the new corporate 401(k). The new retirement plan purchases stock in the corporation, which provides it with the capital needed. You can continue to make ongoing retirement contributions to the tax-advantaged retirement account as the business grows. Points to Know about ROBS Whenever money goes back to the 401(k), there’s a sale of the business, or the business declares dividends, that money will pass back directly to the shareholder’s 401(k) plan. There’s the potential for a total loss. If the business fails, your stock in your C-Corp could go to zero, providing a loss to your 401(k). There’s a cash flow and business financing options can help you set up your C-Corp and determine how to make the ROBS strategy work for you. Having a professional help you navigate ROBS’ complexities ensures compliance and
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