Use Your IRA Funds to Buy A Business
If you plan to leave your job and you have an IRA or 401(k) retirement plan, why not use your IRA funds to invest in yourself? This is a much safer route than going into a volatile stock market you may not understand. Stop using putting your funds into traditional investments. Use your IRA funds on a business you can run, manage, and even earn a salary from.
The ROBS solution, may be right for you.
Previously known as the Business Acquisition Solution (BACSS) at IRA Financial, you may already know the structure, but let’s briefly recap the foundation of the ROBS solution and how it can benefit you.
With the ROBS solution, a C Corporation is formed which will adopt a 401(k) Qualified Plan. Your existing retirement funds can then roll into the new 401(k) Plan tax-free. The 401(k) Plan will then purchase the stock of the new corporation. Finally, the new corporation will use those funds to purchase a new business or franchise tax-free!
With the IRS ROBS Solution, you can earn a reasonable salary from your new business or franchise. You can also use your new 401(k) Plan to make high tax-deductible contributions (click here for current limits). Additionally, you can borrow up to $50,000 for any purpose. If you are over the age of 50, you can borrow up to $62,000.
What does the IRS Say about the ROBS Structure?
The Internal revenue Code allows individuals to purchase corporate stock by a 401(k) Qualified Plan. The IRS has repeatedly confirmed that the structure is legal. However, the IRS does express concern over the potential for abuse by individuals who don’t receive proper advice from tax professionals. For example, the IRS documented the following instances of abuse when it comes to using your IRA funds to invest in a business:
Employees of the business do not receive proper information that a 401(k) qualified plan has been adopted by the business and that they are eligible to participate.
The structure was established with no intention to use for business purposes and the sole purpose for establishment was to get access to the retirement funds without penalty.
The structure is only in use to purchase assets for personal gains with the retirement funds.
As a result, the IRS stresses that when you use IRA funds or 401(k) funds to establish a new business or finance an existing one, you must always work with qualified tax professionals. These are professionals with years of experience in this area and can make sure that the structure is established in full compliance with IRS and ERISA rules and procedures.
ROBS vs Self-Directed IRA LLC
The ROBS structure at IRA Financial Group is IRS compliant. The ROBS is the only legal structure that individuals can use to invest retirement funds into a business they will operate and be employed by. As you may know, with a self-directed IRA LLC, an individual can invest retirement funds in a private business, but not a business that he or she is involved in. According to the Internal Revenue Code 4975, that is a prohibited transaction.
With a Solo 401K, an individual can only borrow up to $50,000 or 50% of his or her account value (whichever is less). He/she can then use that loan for any purpose, including starting or financing a business. Notably, if an individual requires more than $50,000 for a business, then the ROBS is the only solution that will allow one to use their retirement funds to start or finance a business. You can start your business today tax and penalty free!
Work with our IRA specialists today to help you use your IRA Funds to buy a business.
Did you know?
You can generate tax-deferred income from your Self-Directed IRA LLC.