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Using Retirement Funds to Help a Struggling Business

Using Retirement Funds to Help a Struggling Business
4 Minute Read

Social distancing is the right thing to do, but it’s wreaking havoc with many small businesses, and you may be wondering about using retirement funds to help a struggling business. Bars and restaurants have decided either to close indefinitely or else convert to strictly delivery and carryout. And they have to make decisions based on the welfare of their employees, customers, and businesses. Mom and Pop stores where people stop in to buy the newspaper, get some coffee and a bagel, pick up an emergency pack of diapers, or browse through items are also being especially hard hit as stores make the same decisions. And through all of that do they furlough employees, or try and keep them on the payroll?

Key Points
  • COVID-19 is affecting everyone and everything
  • You may be a small business but you’re not alone
  • ROBS may be able to help you
  • CARES Act makes it easier to tap retirement savings

What is ROBS?

Business owners can use the ROBS solution to help finance their business. By investing in your own C corporation you can get capital for your business or franchise when you need it, rather than taking out a loan or otherwise incurring hefty debt. Since you’re using your own money, you’re investing in yourself and your dream.

ROBS Solution, or the Rollover Business Start-up (aka Rollover as Business Startups), is an IRS and ERISA approved structure that allows you to invest funds from a Traditional 401(k) or IRA Plan to purchase a new or existing business or franchise tax-free and penalty-free.The ROBS arrangement typically involves rolling over an existing IRA or 401(k) plan account into a newly established 401(k) plan, which a start-up C Corporation business sponsors. You can then invest the rollover funds in the stock of the new C Corporation, meaning your money is coming back to work for you in these trying times.

How Can ROBS Help?

At IRA Financial Group, our ROBS strategy allows the new business to borrow from third parties, pay salaries to employees including the shareholders and plan participants, and engage in other routine business transactions with disqualified persons. ROBS is not a magic solution and does come with some risks. Reach out to IRA Financial to discuss the possibilities. But using retirement funds to help a struggling business can be something that works for you.

401(k) Loan

It’s also possible to get a loan from your 401(k) to get needed funds to help you over the hump, as an alternative to the ROBS solution. If you borrow money from your 401(k) plan and not a bank there’s no credit check and your money comes much sooner. The interest get paid back to you, and it’s a tax and penalty-free use of 401(k) funds.

Since you’re borrowing from yourself you’re paying yourself back, as well. You’re in full control of your own money and don’t have restrictions as to who and what it can be used for. A 401(k) loan can help your business more quickly than some other programs.

Some Ways to Save Money Right Now

It can be a scary time when business slows or is at a standstill, not just because of COVID-19, but any time. Here are some things to consider when looking to save money.

  • It can be a good time to look at your square footage. Do you need an open floor plan or can everyone work from home and just come in to the conference room? Can you justify having the party room next door, or is it an added expense you could do without?
  • Look at your vehicles and fuel consumption. While there’s a good feeling to owning a vehicle wrapped in your company’s logo, is it a necessary expense?
  • Consider your supply costs and revisit them. Can you find the same quality at a lower cost elsewhere? Remember not to sacrifice what makes your business unique, but do consider where your money is going.


The CARES Act, or Coronavirus Aid, Relief, and Economic Security Act, has been passed in the United States, and is designed to help cushion some of the blow to the economy right now. Individuals will be receiving cash payments, with more for children under 18. There’s $349 billion in small business assistance available, which hopefully means the economic hardships will start to loosen soon. Both loans and debt relief are available, with conditions, under the CARES Act, and it’s worth it for all small business owners to take a look at what assistance may be available to help them through these tough times.

More Help

On January 11, 2021, the second round of PPP funding began. The loans will allow businesses who are still suffering to get the aid they still need. On January 13, the PPP was opened for second-draw loans for businesses who received funding last year. This means, even if you received a PPP loan in 2020, you can still receive more funding if you qualify. You must show at least a 25% reduction in gross receipts from the fourth quarter of 2019 to 2020.

Further, $25 billion is being set aside for small businesses in low or moderate income neighborhoods. You may be eligible to receive up to 2.5x your average monthly payroll costs. These funds must be used for payroll and other business-related expenses for the loan to be forgiven. Further, if you are in the “Accommodation and Food Services sector,” you may receive 3.5x your monthly payroll.

Moving Forward

Perhaps most important, try to keep family and friends safe and healthy by practicing social distancing, because the longer people resist that, the longer it will take for things to return to a semblance of normal. Things may never be exactly the same, but people will go out to eat again, and will walk down Main Street again, looking for that perfect gift. Just add some words of wisdom, and talk about the 2 options from the article.

Whether you choose the ROBS solution or the 401(k) loan, know that IRA Financial is here to help. Using retirement funds to help a business is a great way to keep yourself afloat. Looking into your options can make you feel more secure about the future during a time of great uncertainty.

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