1. Neither nondeductible (after-tax) IRAs nor Roth IRA funds can be transferred to the Business Financing 401k (ROBS 401k).
2. While Roth 401k, Roth 457 and Roth 403b can be transferred to the “Roth Designated Account” bucket of the Business Financing 401k (ROBS 401k), this bucket cannot be invested in your C-Corporation business.
3. As a rule of thumb, in order to transfer an employer plan such as a PSP, 401k, 403b and 457b plan to the Business Financing 401k (ROBS 401k), you either have to be no longer employed (separated from service) with the employer that sponsors the retirement plan or be age 59 ½ or older (retirement age). However, some exceptions apply. Or only if you transferred funds from a previous employer plan or IRA you generally will be able to transfer these funds from the plan to the ROBS 401k plan prior to separating from service.
4. The Business Financing 401k (ROBS 401k) setup fee cannot be paid with retirement funds or the C-corporation funded business. Also, once the business has been funded, business funds cannot be used to pay off your personal credit card that was used to pay the ROBS 401k setup fee.
5. The purpose of the Business Financing 401k (ROBS 401k) is to fund your own business; therefore, you have to (don’t have a choice other than being) be a W-2 employee of the retirement funded business.
6. The use of the Business Financing 401k (ROBS 401k) strategy requires a C-corporation entity (no exception).
7. All  the revenue generated by the ROBS 401k funded C-corporation business will simply flow in and out of the corporation’s business account.  If at the end of the year after the company has paid expenses & taxes, the company has earned an after-tax profit company could decide to distribute that profit. In that case, the C-corporation would pay out dividends (profits) to the stockholders in which case it must pay all stockholders dividends in accordance with the ownership percentages (i.e., the 401k for you benefit and you personally). For example, if the only two stock investors in the C-corporation are you and your ROBS 401k, profits/distributions attributable to the shares in the 401k would flow to the 401(k) account on a tax-deferred basis and the remaining profits would be distributed to you personally; you would have to pay capital gains on your personal amount on your personal taxes.
8. You should wait to receive w-2 compensation (e.g., salary, bonuses, etc.) until the C-corporation 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).  Any compensation that you receive should be paid to you as W-2 wages (i.e. not as 1099 income).  As such, it will be prudent to coordinate with your business tax adviser.
9. Your ROBS 401k cannot guarantee a business loan to your ROBS 401k funded C-corporation.
10. Your ROBS 401k funded business cannot do business with any other business that you or disqualified persons own. Disqualified persons include you, your spouse, child, grandchild, for example.

More Items to Know

• Inherited IRAs or inherited qualified plans such as a former employer 401k plan cannot be transferred to the ROBS 401k plan if the funds were inherited from a non-spouse.
• You cannot loan personal funds to the ROBS 401k funded business. This same rule also applies to disqualified parties such as your parents, children, spouse, etc.
• The ROBS 401k funded business can be operated via/through a subsidiary LLC that is wholly-owned by the C-corporation.
• The ROBS 401k funded business must be a C-corporation and Can NOT be an S-corporation.

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.