401k Rollover as Business Startup – ROBS Buyout

After I rollover my retirement money from my 401k/IRA to fund or start-up a franchise or other business, can I buyout the 401k’s ownership interest in my business?

 

After you finance your business via a rollover as business startup (ROBS), your 401k will hold stock in your company. Under the Department of Labor’s prohibited transaction rules, you will be prohibited from simply purchasing the stock form your 401k.  
To avoid the prohibited transaction rules, you would have to sell the shares of the corporation to an unrelated third party. Please note that a related person includes (i) you, (ii) your family member (incl. spouse), (iii) a company owned by you/your family member, (iv) an officer, director, partner, employee or other owner of a company owned by you/your family member, and (v) a company/person that provides services to you, your family member or a company owned by you/your family member.  
Alternatively, after the stock shares have been appraised you could take the shares out of your 401k as distribution but would need to complete the appropriate distribution forms and pay the associated taxes and penalties. 

 

 

 

 

 

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