Funding your business with a ROBS 401K plan allows you to fund your business with your retirement savings, the funds never leave your retirement account and that is why there is no tax penalty.
I often get asked about what’s required to fund your business with your retirement money. Below are the 9 key requirements in determining whether a business can be funded with your retirement funds.
- The business must be an active business providing goods or services.
- The retirement funds can’t be used to pay off an existing loan or debt you are personally obligated to.
- The business receiving the funding must be a C-Corporation (It can’t be an LLC or an S-Corporation.)
- Funds need to be pretax funds from an existing retirement plan. (Can’t be a ROTH IRA for example.)
- The funds that are invested must be invested in the stock of the business, and needs to be purchased at fair market value.
- No commission may be charged for the 401k profit sharing plan’s purchase of the stock.
- If you’re funding an existing business you will need to get a valuation to ascertain the fair market price per share.
- If you’re funding an existing business, like a sole proprietorship, that isn’t a C-Corporation it needs to be converted to a one.
- If the existing business has employees they should be provided the opportunity to rollover their retirement funds and invest in the business if they would like to do so.
If you’re wondering whether using your retirement savings to fund your business would be right for you please schedule a free consult today, I’m here to answer your questions!
