For those who want to use retirement funds to start a business or fund an existing business.
What is the ROBS Solution?
The Rollover Business Startup (ROBS) Solution, also known as the Business Acquisition Solution, uses funds from eligible retirement accounts, like 401(k) or IRA, to invest in an existing/new business or franchise without tax or penalty.
The legality of the ROBS structure is based on an exception to the prohibited transaction rules under Internal revenue Code Section 4975(d)(13) which allows a 401(k) plan to buy corporate stock. There are 4 steps to establishing an IRS compliant ROBS solution:
- The business is operated as a C Corporation
- The business has adopted a 401(k) plan
- The plan participant has rolled over IRA or 401(k) plan funds into the 401(k) plan
- The 401(k) plan purchases stock in the C Corporation in return for the cash invested from the 401(k) plan.
The ROBS solution is the only legal solution that allows one to invest more than $50,000 of retirement funds into a business they will personally be involved in and work in without triggering the prohibited transaction rules.
Next, you’ll find a short overview of what IRA Financial Group’s ROBS Solution offers. You can also check out our learn more pages for in-depth information, and learn how you can benefit from the ROBS solution.
one-time establishment fee
What’s included in the ROBS Solution?
- Trust Agreement
- Appointment of Trustee
- Beneficiary Designation
- Application for Plan trust EIN
- Assistance in the establishment of business and Plan bank accounts
- Assistance with the transfer of funds to your new 401(k) Plan bank account
- Tax and ERISA support on the ROBS Solution and the 401(K) Plan.
- Access to CPA on matters involving IRS Form 5500
- Guaranteed Audit protection regarding the legality of the rollover business startup
- Establishment of (1) one Corporation including Filing Fees
- Filing Corporate Articles of Incorporation with the state
- Application for Corporation EIN
- Generating all required initial corporate resolutions and minutes
- Generating required Stock Purchase Agreement
- Generating required Employee Stock Purchase Agreement
- Free consultation with in-house tax professional
- Adoption of 401(k) Plan
- Basic Plan Document
- EGTRRA Amendment
- Summary Plan Description
What our ROBS Solution offers
Start or Grow a Business Tax Free
With our Rollover Business Startup (ROBS solution), you can access your retirement funds to start or grow a business tax free and without penalty. Note that accessing your retirement funds can prove expensive if not structured properly.
Earn a Salary
To be eligible to participate in the corporation 401(k) plan, you must become a W-2 employee of the C Corporation. For many entrepreneurs, earning a salary and being actively involved in the business is why they use a ROBS instead of a Self-Directed IRA.
Invest in Yourself
This plan allows the holder to invest their retirement funds in a business that will be actively run by the retirement account holder. This means you can essentially invest your retirement funds on yourself.
Take Advantage of Trump Tax Plan
Prior to the 2017 tax plan, using a C Corporation for a small business was considered tax inefficient because of the 35% maximum corporate tax rate. The plan lowered the corporate tax rate to 21%, which has contributed to the re-emergence of the C Corporation as a popular business entity choice.
Retain Key Employees
Retirement accounts have become many Americans’ most valuable assets. As such, it’s vital that you have the ability to protect them from creditors, such as people who have won lawsuits against you.
With most businesses offering their employees retirement benefits, it is worthwhile for small businesses to compete for talented workers by implementing 401(k) benefits. Offering 401(k) plan benefits is a great way to retain key employees.
What you can do now
Learn if you qualify
Don’t know which plan you qualify for? Have questions about a transaction? Our tax professionals are here to help and will get back to you ASAP.
Open An Account
We’ll take care of everything. We’ve helped over 12,000 clients open self-directed retirement accounts over the last 10 years. The whole process can be handled by phone, email, fax, or mail. Our expert tax and ERISA retirement professionals are on-site, greatly reducing the set-up time and cost.
Call us at 800-472-0646 to get started; we’ll help you get a self-directed retirement structure started within minutes.
We have a ton of resources that will help answer all your questions. We understand the importance of education when it comes to retirement, and we want to make sure you’re confident about every decision you make.
Terms you may have heard
We know there’s a lot of information out there; these terms will help you sort through the different types of plans.
You can set up a business in many ways, such as an LLC (Limited Liability Company). In fact, a corporation is legally seen as a person. In other words, it is subject to tax laws, and can even be sued. A C corporation is different than other corporations as it’s taxed separately from its shareholder. In contrast, an S corporation is taxed based on personal returns. The owner or shareholder has limited liability, which means if the company, is sued the owner or shareholder will not be sued.
In order to establish a Rollover for Business Startup (ROBS), you must form a C corporation and create a new 401(k) for the corp. This allows you to transfer funds from your personal retirement account to your C corporation 401(k) account.
Qualifying Employer Securities
According to the IRS (Internal Revenue Service), a prohibited transaction is a transaction between a retirement plan and a disqualified person. If you’re a disqualified person and you engage in a transaction the IRS does not approve, you receive a penalty. This allows the IRS protect its distribution rules, which generates revenue; however, it also facilitates the IRA holder to invest funds for retirement.
There is only one legal way to use your retirement funds for a business you or another disqualified person is involved in. This is through the Rollover for Business Startups solution (ROBS). It takes advantage of an exception in the tax code: the qualifying employer securities exception. This allows disqualified persons (such as you) to purchase stock in a C corporation.
401(k) Retirement Plan
Through the ROBS solution, the exception in the tax code (qualifying employer securities) allows you to use your retirement funds to invest in a business you’re personally involved in with your 401(k) plan funds. You can use your 401(k) plan funds to buy stock in a C corporation, and this won’t trigger the prohibited transaction rules.
With the ROBS arrangement, you roll over your previous 401(k) or IRA into a newly established 401(k) plan. A C corporation that is newly established or already exists must sponsor the new 401(k) plan. You then invest the funds from the rollover 401(k) plan into the stock of C corporation bank account to use for business purposes.
The Internal Revenue Service (IRS) wants to see your retirement funds grow in value. However, this isn’t for the benefit of the IRA holder, but so the IRS Treasury department can benefit from your RMD (Required Minimum Distributions) tax payments. The RMD rules require anyone with IRA or 401(k) to begin taking our a percentage of their retirement funds as a taxable distribution. This does not apply to the Roth IRA.
However, if you take all of your retirement funds and invest in a personal business that has the potential of failing, the IRS receives no RMD or an extremely reduced RMD which negatively impacts the Treasury. As a result, in 2008, the IRS issued the ROBS memorandum, which offered acted as a warning to investors using the ROBS solution. It was designed for investors to stay up to date with compliance matters so the ROBS structure can be approved by the IRS.