• As far as the mechanics of the buyback, the corporation would purchase the stock back from the 401k over one or a series of purchase provided that it would have to do so at fair market value at the time of each buyback.
• The value of the company stock will need to be supported by a third-party business valuation.
• The money would flow from the corporate bank account back to the 401k brokerage account on a tax-deferred basis.

Here is the impact on the ownership of the C-corporation:

• As the 401k sells stock back to the C-corporation, the number of shares held by the 401k will decrease.  As a result, the 401k will own a lower percentage of the company.
• Conversely, the other owners of the business (i.e. you) will owner a greater percentage of the business.
• If the C-corporation buys back all of the stock from the 401k, you will no longer own company stock through the 401k and the other owner(s) will thus own 100% of the business

Here is how the price per share for the stock buyback is determined:

• The C-corporation must buyback the stock at fair market value.
• While the IRS doesn’t necessarily specify items that must be in the report, they have issued guidance on valuing a closely-held corporation (e.g., see IRS Revenue Ruling 59-60).
• Moreover, it is certainly a best practice if the valuation is prepared by a third party who is a business valuation specialist or someone who has relevant training and experience.

Here is what happens to the ROBS 401k:

• The proceeds of the stock buyback will be deposited in the 401k brokerage account & you can invest those funds however you see fit (e.g. stocks, bonds, mutual funds, etc.).

The short answer is yes. Any eligible individual who has compensation may contribute to an IRA, whether or not they participate in a 401k plan.. However, the fact that you are participating in the 401k plan sponsored by the C-corporation may affect your ability to deduct a traditional IRA contribution; as a result, depending on your modified adjusted gross income you may have to treat it as non-deductible IRA contribution.  For more on this topic please see the IRS chart HERE.

Once the business that is funded with your retirement funds is generating income to justify your salary (not necessarily profit), you may receive reasonable compensation based on the work that you are performing which would be paid to you as W-2 wages.

Our Guarantee provides that in the event of an Audit, we will step up as the Plan Provider to help you respond to the audit at no additional charge.  Moreover, if the 401k Business Financing plan is challenged as prohibited transaction we will pay for legal counsel to represent you at no additional cost to you.  See our Guarantee here: https://www.mysolo401k.net/401k-ira-business-funding-financing-guarantee/.

It is not possible as long as you own shares via the 401K. The Entity must be taxed as a C corporation.

As part of our ongoing compliance support for the business financing 401k plan, we will prepare the annual tax filing for the 401k (i.e. Form 5500).  You will need to work with your business legal and/or tax adviser for licensing, tax, etc. requirements applicable to the C-corporation.  We are happy to discuss with your accountant to answer any questions from a 401k perspective.   Here are items to highlight for your adviser:  

The waiver would not be permanent (i.e. they would have the chance to participate in the future).

First, you are not entitled to receive a salary because you are an owner (shareholder).  You are entitled to receive compensation for the work that you perform for the C-corporation that is funded with your retirement funds.  You need to wait to receive w-2 compensation (e.g., salary, bonuses, etc.) until the C-corporation funded with your retirement funds is generating income to justify your salary and then your salary should not be unreasonably high (i.e., no more than what the company would have to pay someone else to do all of the things that you do).  Please note that generally speaking the salary paid to you is independent of whether the company is generating a profit. For example, a business is obligated to pay its employees even if the business is losing money.  Of course, companies may pay their employees a reasonable commission which are tied to the performance of the company.  It would prudent to document your functions and any market research that you have showing how much it would cost to hire someone to perform those same functions (e.g. online salary info, etc.).

This will certainly not work if the existing corporation is owned by you personally. It is a prohibited transaction for a corporation that is funded with your retirement funds (via a 401k Business Financing transaction) to enter into a lease with another entity that you own.

Our clients regularly use our 401(k) business financing plan in conjunction with an SBA loan – including using the proceeds of the ROBS 401K rollover as a “down-payment” to secure the SBA loan for their business.  In fact, the SBA guidelines contemplate that the borrower of an SBA loan could be a corporation that is owned by a 401(k) plan (i.e. a corporation that has been funded via a ROBS transaction).  In order to close on your loan, the SBA provider will require you to provide certain documentation.  As part of our services, My Solo 401k Financial will help you complete a number of items on this “checklist” so that you can close on your loan and fund your business as quickly as possible.

Good question. As long as you own part of the C-corporation via your 401k the C-corporation must be taxed as a C-corporation (NOT as an S-Corporation). This is an IRS regulation.

Ultimately, we will form the Corporation in whichever state you direct us to do so. Based on customer feedback, most of our customers prefer to set up the Corporation in the state where they will do business and live. Otherwise, they will need to maintain the Corporation in multiple states. Moreover, if you form in a different state you would need to hire a resident agent to serve in the state in which you elect to form the corporation as well as register the corporation in the state in which it operates among possibly other requirements (e.g., filing taxes in multiple states, etc.).  For these reasons, the vast majority of our clients elect to form the corporation in the state in which the business operates.  Based on customer feedback, setting up the Corporation in Delaware is something to consider if you are looking to attract institutional investors who prefer to invest in Delaware C corporations (e.g. hedge fund, private equity, etc.)

While we don’t have any particular banks to recommend, one practical consideration would be to take a long-term view in choosing a bank to open the business bank account at (e.g., one where you could leverage an existing relationship or one where you might build a relationship).

The brokerage firm is merely the custodian of the cash (and other traditional investments such as any mutual funds, publicly traded stocks, etc.) in the ROBS 401k.  As such, the brokerage firm will not be holding the stock certificates & therefore the stock certificates are not listed on the brokerage statement which is correct for the reasons mentioned.

If you take an in-kind distribution of the shares from the 401k to yourself, this means that you would have to pay taxes (not penalties if you are older than 59.5) based on the value of the shares and which value needs to be supported by a third party valuation.  If you wish to proceed, please obtain a valuation and then let us know so we can guide you through the required steps, and perform the required Form 1099-R reporting

No it does not.  The nature of the business activity can change and/or you can add lines of business.  Below is a description of the framework requirements:

• The business must be an active business (e.g. providing goods and/or services)
• You must be active in the operation of the business.
• The business must be operated via the C-corporation that is funded with your retirement funds.
• If you are buying an existing business, the C-corporation must buy the business from an unrelated third party.
• The entity may have different lines of business which it operates through different subsidiary LLC’s provided that the C-corporation should be the majority owner of the subsidiary & the other owners (if any) of the subsidiary must be unrelated and must invest cash in the subsidiary in proportion to their ownership percentage.

I understand that you separated from service from your former employer plan when you were age 55 or older such that distributions from your former employer plan were not subject to the 10% early distribution penalty.

When you transfer the funds to a new employer plan (e.g., the ROBS 401k plan), this exception (age 55 exception) does not “travel” with the transferred funds such that if you are under 59.5 and take a withdrawal from your new employer 401k plan the early distribution penalty will apply.

I understand that you separated from service from your former employer plan when you were age 55 or older such that distributions from your former employer plan were not subject to the 10% early distribution penalty.

Typical examples of the prohibited transaction would involve a transaction between the ROBS 401k funded Corporation and a disqualified person. For example, consider a scenario where you own a medical supply business. In this case, the C Corporation, which is funded with your retirement money and operates the home healthcare business, is prohibited from purchasing medical supplies from the business that you own in your own name since that business is considered to be a disqualified person. Another example of a prohibited transaction would be a scenario where you use personal funds to start this business & then reimbursed yourself with the proceeds of the 401(k) business financing plan which were invested in the C Corporation. Please note that we try to identify these potential issues in the course of our initial discussions with potential ROBS clients as well as our online application for our 401(k) business financing plan which asks about potential related party transactions, other businesses that you may own, etc.

The C-corporation can certainly take investments from other investors.  If those investors purchase common stock, the stock must be issued at fair market value at the time of the purchase. If the investment is made during the pre-revenue startup phase prior to opening for business the C-corporation can make a reasonable business decision to issue the stock at the same price per share as the price per share for the initial investment of 401k funds.

From a 401k perspective, it would be acceptable for the C-corporation to operate the business via a 100% subsidiary LLC and own the real estate through a separate 100% subsidiary LLC.  If you will also use an SBA loan, however, this structure is not compatible with the SBA rules such that the C-corporation would need to both operate the business and own the real estate directly.

Unfortunately, your situation will not qualify since you live on the land and there is a mortgage on the land on which you are personally obligated.  If you did not live on the land and owned it free and clear, then you would be able to use our 401k Business Financing plan to develop the land into a business. Please let me know if you have any questions.

Yes you have to participate as this is the basis for you to rollover your retirement funds into the ROBS 401k and invest in C-corp. company stock.

From a 401k perspective, the borrower may be the C-corporation or a wholly-owned subsidiary of the C-corporation.  This means that it would be acceptable for the borrower to be either or both.  In our experience, we have seen both a single borrower as well as co-borrower structures.  Either is acceptable provided that an EPC/OC structure is not used.

A ROBS 401k It is a federal retirement trust that is regulated by the IRS so it is not registered in any state.  It is a qualified plan so the income is tax deferred. The 401k has a separate EIN that is specifically for qualified 401k plans (such that the IRS will know that this is a tax deferred vehicle).

If the 401k participants takes a home equity loan, she can use the proceeds of the loan to invest in the ROBS 401k funded business. This investment would count as part of the individua’s personal stock investment in the Corporation so shares of stock would be issued to the individual. What is more, the company cannot pay back a loan the 401k participant is personally obligated inclluding a home equity loan. However, the individual can use the reasonable W-2 wages received from the 401k funded business (once the company is generating income to justify your reasonable compensation) to pay back this home equity loan.

First, you must meet a triggering event in order to take a distribution from a 401k including a ROBS 401k. Distribution triggering events include retirement age (usually age 59 1/2) and no longer working for the employer that sponsors the 401k. Regarding taking a distribution from a 401k plan and then paying back within 60 days, the mandatory federal upfront tax of 20% withholding requirement would still apply. For example, if you distribute $10,000 you will receive $8,000 since a 20% federal tax withholding would apply. You woud still be able to deposit $10,000 within 60 days.  

Also, distribution reporting will apply. See the following form the IRS page: 

Depositing and Reporting Withheld TaxesPayers report income tax withholding from pensions, annuities, 403(b) plans, governmental section 457(b) plans, and IRAs on Form 945, Annual Return of Withheld Federal Income Tax. Do not report these withheld amounts on Form 941, Employers Quarterly Federal Tax Return.   You must furnish Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. to payees and the IRS. Deposit such income tax withholding with any other nonpayroll withholding reported on Form 945 (e.g., backup withholding). Do not combine the Form 945 deposits with deposits for payroll taxes reported on Form 941 or NRA Withholding taxes reported on Form 1042. Circular E and the separate Instructions for Form 945 include information on the deposit rules for Form 945.For information on withholding and reporting on pensions and annuities paid to foreign persons, refer to Pensions, Annuities, and Alimony (Income Code 15) in Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities.

It depends on the financial institution currently holding the IRA or former employer funds that you plan to transfer to the ROBS 401k, but we will assist with in preparing the transfer forms.

The transfer of IRAs or former employer plan funds to the ROBS 401k at a later date will be covered in our annual fee so no additional fees apply on our end.