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How can you make ROBS and COVID-19 work for you? Now may be a great time to explore ROBS, or the Rollover Business Startup Solution and what it can do for you during the COVID-19 pandemic.

Key Points
  • Start a new business or franchise
  • Legally pay yourself a salary
  • Abide by IRS and ERISA guidelines

What is the ROBS Solution?

The ROBS Solution (Rollover Business Startup Solution) is an IRS and ERISA approved structure that allows investors to use their retirement funds for a new business or franchise that they will be personally involved in. It is the primary way a retirement plan holder can have personal involvement in a business utilizing their retirement funds, without triggering IRC prohibited transaction rules.

Setting up a ROBS structure requires forethought, but can be accomplished in relatively few steps.

  1. Set up a C Corporation – The process begins by establishing the new corporation, using the proper legal structure to support the establishment and operation of the company’s qualified retirement plan.
  2. Rollover your funds – Transfer your funds from an old IRA or 401(k) plan into a new 401(k) plan that the stock of the start-up C corp. business sponsors or adopts.
  3. Start earning a salary – You must be an employee of your new business and provide a legitimate service. Your compensation must come from your business.

How Do ROBS and COVID-19 Relate?

While there’s a pandemic, millions are losing their jobs and joining the ranks of the unemployed. More than ever, many are trying to rely on themselves and not some corporate entity that doesn’t care about them as individuals. Using ROBS can be an ideal way to start the business of your dreams with money you already have.

ROBS can help you fund a new business or franchise with retirement funds, and that means you’re starting on your way to owning and fulfilling your goals. When COVID-19 hit, no one could have anticipated it would bring the unprecedented upheaval of everyday life that it has.

How Does ROBS Work?

The ROBS Solution allows an investor to create a C Corporation, and the C Corp’s profits are taxed separately from the owner as it is owned by shareholders. Next, funds are transferred from an old IRA or 401(k) plan. Then, as an employee providing a legitimate service, you are able to earn a salary at the business you’ve created.

There are very specific IRS and ERISA rules that have to be followed, and for this reason guidance is recommended. IRA Financial can help you get started and you can contact us here. When it’s time for your new company’s stock to get valuated by the IRS, it’s important to work with an independent contractor or business appraisal CPA to help value the stock of the new or existing company.

ROBS Benefits

More than almost anything else, Americans are looking to make certain they can make it through the COVID-19 pandemic, civil unrest, and the whole of the current situations currently embroiling the nation. For those who have lost their jobs and have been unable to find replacement work, tapping into their retirement funds have been one source of income to help.

More than just taking funds out, though, ROBS can help you open a franchise or start a new business you can own yourself. Your money is helping you and your family first. The primary benefit of using the ROBS Solution is that you can employ it to use your retirement funds to invest in a business you will be personally involved in. You can do this without paying tax on the retirement funds you wish to use as a distribution.

Additionally, investing in yourself within your retirement portfolio is an excellent way to diversify. Your investments in traditional assets such as stocks and bonds, and alternative assets such as cryptocurrency, exist separately, and you can fund your own business as well. This may protect investment portfolios as a whole during times of unrest and market volatility,

During the COVID-19 financial crisis, it’s important to know where you money is and what it’s doing. While investing in the market and traditional assets can bring you financial success, it’s very volatile at this time. Alternative assets like real estate can help diversify your portfolio. And using ROBS to fund your dreams can help you even more.

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