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Self-Employed Solo 401k FAQ – Can I roll my Solo 401k into a ROBS 401k Business Financing Plan?
I am a solo entrepreneur with a Solo 401k. Can I roll my solo 401k into ROBS 401k so that I can use the funds for business financing?
RESPONSE:
Great question as we offer both Solo 401k and ROBS 401K Business Financing plans!
While it is possible to roll a Solo 401k into a ROBS 401k, there are a number of issues to consider.
If the solo 401k owner/participant is funding a new business here are a few considerations among other potential issues:
- The new business needs to be a C-Corporation
- If there is an outstanding solo 401k participant loan, this will need to continue to be paid back according to the existing payment schedule with the payments being made to the ROBS 401K plan.
- The C-corporation that is funded with retirement funds cannot interact with any other businesses owned by the solo 401k owner/participant or a spouse if any (such as the business which sponsors the Solo 401k).
- The new business needs to be an operating company (e.g. providing goods .and/or service, etc.), and the solo 401k owner/participant would need to work in the business as a bonafide employee (e.g., 1,000 hours per year.)
If the solo 401k owner/participant is funding the existing self-employed business that sponsors the Solo 401k plan, here are a few considerations among other potential issues:
- If the existing business is not a corporation taxed as a C-corporation, it will need to be converted to a corporation taxed as a C-Corp
- The solo 401k owner/participant will need to obtain a pre-ROBS valuation of the existing business immediately before the investment of retirement funds so that we can determine how many shares will be issued to the 401k.
- If there is an outstanding solo 401k participant loan, the solo 401k owner/participant will continue to pay back the outstanding 401k participant loan according to the payment schedule previously provided.
An additional consideration under both scenarios above is whether there are alternative investments (e.g. real estate, promissory notes, etc.) in the Solo 401k.
If yes and if the value of those alternative assets is equal to 5% of the total value of the plan, the solo 401k owner/participant will need to either (i) obtain an ERISA fidelity bond equal to 100% of the alternative assets (which bond could be $1,000 or more depending on the value of the alternative asset) OR (ii) transfer the alternative assets to a self-directed IRA that can hold the asset (such as our IRA LLC), and in which case the ERISA bonding requirement would not apply since the asset would not be held in the ROBS 401k plan.
