Request:

Please give me a list of the steps involved in moving my money from my TSP account into a C Corp and using the funds to buy a business.

ANSWER:

The Business Financing 401k Plan, also known as a ROBS 401k, allows you to fund a business with your retirement funds without taking a taxable distribution. This can be done provided that the business you are looking to start or buy is a good and/or services business.

If you’re no longer working for the government and this is a former employer TSP plan. The IRS rules allow for the transfer of a TSP to a 401k and a ROBS falls under the 401k or define contributions umbrella. We will handle the transfer process (including completing all of the necessary paperwork).  As part of our process, the administrator of the TSP will provide the transfer paperwork (Form TSP-70-T, or TSP-70 if you want to process a full transfer) or to rollover funds from your TSP to your new employer ROBS 401(k) plan (which paperwork we would complete as part of our services).

We take care of everything needed to fund your business with your retirement funds including setting up the corporation including drafting the Articles of Incorporation and filing them with the Secretary of State on your behalf. We draft the 401k plan documents, assist with the transfer of the funds to ensure that no taxes or penalties are incurred, and then documenting the transaction with corporate records such as stock certificates, bylaws, etc.  Going forward, we provide all of the ongoing compliance support for the 401k plan including the annual 5500 filing, on-boarding any eligible employees who wish to participate, keeping the plan up-to-date to ensure that it maintains its status as an IRS-approved qualified plan, mandatory plan testing, etc.

Furthermore, transferring the funds is a two-step transfer process. First, the funds will flow from the existing retirement account (TSP) to the new 401(k) sponsored by the new C Corporation. Then you will invest however much you want to in the stock of the C Corporation such that the funds will flow from the new 401(k) account to the business bank account of the C Corporation. The funds that are invested can then be used for any legitimate business purpose by the C Corporation.

The entire process 15 to 20 business days. Typically, the biggest “X-factor” in terms of timing is the process to rollover the funds from your existing retirement account(s). To shorten the time to fund your business through our ROBS 401k Business Financing Plan, we will start the transfer process immediately including handling all the required transfer paperwork. In addition, each 401k plan administrator or financial institution that holds your existing retirement will have its own unique transfer process.  Moreover, while many companies have started to modernize their transfer process over the last few years by moving to a telephone or online process, the process is still quite cumbersome for many companies.  Our team has deep experience and expertise in navigating the varying transfer processes so that your funds can be transferred and your business funded as soon as possible!

If you are seeking to use your retirement funds for business financing and currently have retirement funds in various former employer plans and IRA accounts, the financing of the business can be done using solo 401k funds through a solo 401k participant loan or using the 401k business financing plan (also known as a ROBS 401k PSP Plan).

Method 1 Funding Own Business Using a Solo 401k Participant Loan

Using a Solo 401k Loan for Business Financing would allow you to borrow up to 50% of the balance (not to exceed $50,000) that you could use for business financing.  This option has a lower cost and would allow you to operate the business through an LLC or S-corporation but requires repayment of the loan(s) and is designed for a business with no w-2 employees who work more than 1000 hours per year.

Method 2 Funding Own Business Using the 401k Business Financing Plan

Funding you business via our 401k Business Financing (or rollover as business startup) would allow you to invest all of the retirement funds and does not require repayment but is a higher cost and would require operating the business as a a C-corporation.  The funds not invested in the business can be invested in equities.

QUESTIONS:

ANSWERS:

It is a two-step transfer process. First, the funds will flow from the existing retirement account to the new 401(k) sponsored by the new C Corporation. Then you will invest however much you want to in the stock of the C Corporation such that the funds will flow from the new 401(k) account to the business bank account of the C Corporation. The funds that are invested can then be used for any legitimate business purpose by the C Corporation. While you can make subsequent investments of 401(k) funds in company stock, each investment would need to be documented as a subsequent stock purchase which may require obtaining a valuation of the company to determine the fair market price per share (and moreover, if there any other employees participating in the plan at the time of the subsequent stock offering these individuals will be need to be given a chance to invest their 401(k) funds in company stock as well at the time of the subsequent stock offering).

403b QUESTION:

I am thinking about using my 403b funds to fund my business, can this be done and would like to know how the process works timing, and fees associated with it.

403b ANSWER:

While a 403b cannot invest in one’s own business, yes a 403b can be transferred to the business financing 401k provided you are no longer working for the employer that sponsors the 403b and the 401k would then be invested in your C-corporation.

Also, in order to use 401k retirement funds to finance your own business, the business has to be one that will offer goods or services. Therefore, a C-corporation that offers investments will not qualify, for example.

You will also be required to work as a W-2 employee for the C-corporation, and can thus draw a fair salary based on hours worked and what others in the same industry make. For more on the salary rules, please see the following: https://www.linkedin.com/pulse/20141011003951-361793377-robs-401k-business-financing-how-much-salary-can-i-make

Process, Timing and Fees:

• Process: We take care of everything needed to fund your business with your retirement funds including setting up the corporation and the 401k plan, assisting with the transfer of the funds to ensure that no taxes or penalties are incurred and then documenting the transaction with corporate records such as stock certificates, bylaws, etc.  Going forward, we provide all of the ongoing compliance support for the 401k plan including the annual 5500 filing, onboarding any eligible employees who wish to participate, keeping the plan up-to-date to ensure that it maintains its status as an IRS-approved qualified plan, mandatory plan testing, etc. 
  
• Timing: Typically about 15 business days depending on how long it takes the funds to be released by the current plan administrator.
• Fees: We charge a flat setup fee which includes everything to set up and fund your business with your retirement funds as well as the first 12 months of our ongoing compliance support for the 401k.  Starting 12 months later we charge an annual fee. For more information, please see the following link: https://www.mysolo401k.net/401k-business-financing/401k-business-financing-pricing/