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!
