ROBS 401k Quick Start Guide – 3 Questions You Need to Ask

With our 401K Business Financing plan (also known as Rollovers for Business Startups or ROBS 401K plan), you can tap into your retirement savings to finance your business without paying taxes or penalties.

While many entrepreneurs decide that a ROBS 401K plan is the “answer” as they seek to fund the startup or purchase of a business, there are important rules that must be followed in order to properly establish and maintain a ROBS 401K plan.  We spend significant time educating our clients and guiding them through the initial and ongoing compliance requirements.

As you consider whether to use our ROBS 401K plan for business financing, here are three important questions to help you decide whether you should pursue a ROBS 401K for business financing.

Am I eligible?

In order to be able to fund your business with your retirement funds tax-free and penalty-free via a ROBS 401K plan, you must meet the following requirements:

  • Eligible Retirement Funds: You must be able to rollover your retirement funds to the ROBS 401k plan which means that they must be in your former employer plan or non-Roth IRA.
  • Eligible Business: The business that you are starting or buying must be an active operating company which means that it is providing goods and/or services or is an active real estate operating company. If you are buying a business, you can’t buy the business from a related person or a company owned by a related person.
  • Bona-Fide Employee: You must work in the business as a bona-fide employee (e.g. working at least 1,000 hours per year in the business).

How much do I want to invest?

While there is no minimum required amount of retirement funds to be eligible to fund your business via a ROBS 401K business financing plan, many business owners find that the costs and compliance requirements are not worth it if they are looking to invest a relatively small amount.  If you are seeking to invest $50,000 or less and your business will not have any full-time w-2 employees (i.e. w-2 employees working 1000 hours or more or 500 hours or more for 3 consecutive years), you wish to consider using a Solo 401k Loan for Business Financing to fund your business.

Can I follow the ongoing requirements?

In order to properly maintain a ROBS 401K plan, you must meet the following ongoing compliance requirements:

  • C-corporation requirement: The entity that is funded with your retirement funds via a ROBS 401K plan must be maintained as a C-corporation including filing a Form 1120 at the federal level, etc.
  • No Related Party Transactions: The entity that is funded with your retirement funds cannot enter into transactions with another business that you own. For example, a dairy farmer can’t use a ROBS 401k plan to fund an ice cream shop and then have his ice cream shop buy milk from his dairy farm.
  • Annual ROBS 401k Compliance Requirements: After funding your business with a ROBS 401K plan, the 401k plan must be maintained and kept in compliance including annual filing requirements, valuation requirements, mandatory plan updates, offering the plan to eligible employees, etc. To learn more about these requirements and our ROBS 401k compliance support, please click here.

Other issues to consider:

  • How does the process work? Click here to review the steps in the ROBS 401k Business Financing
  • How much does our ROBS 401K plan cost? Click here for our ROBS 401K pricing page.
  • How does My Solo 401k compare to the other ROBS 401K providers? Click here for our ROBS 401K plan comparison page.
  • Will you help me obtain an SBA loan? Yes – a large percentage of our customers use our ROBS 401K plan and an SBA loan to fund their business and we will help you find and close on an SBA loan. Click here to learn more.

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About George Blower

I have the privilege of educating our clients about our products and services so that they can make informed and confident decisions about their financial future. Prior to joining My Solo 401k Financial, I served as the general counsel for a subsidiary of a Fortune 500 financial services company. Learn more about George Blower and My Solo 401k Financial >>

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