Last Updated on October 16, 2020
In case you’ve been living under a rock, another Prime Day has come and gone. Amazon, the top online retailer in the world, has stepped up its game yet again. Prime Day 2020 brought in $3.5 billion for third party sellers. Yes, that’s billion with a ‘B’! If you’ve ever thought of going into business for yourself selling items on the giant’s site, now is the perfect time. Start now to get ready for next year’s Prime Day. If you don’t have the capital on hand, you can use retirement funds to get your business off the ground. Using ROBS to start an Amazon business may be a solution for you.
- Amazon Third Party Sellers are huge right now
- Use retirement funds to start your own Amazon business
- ROBS is the best way to use those funds for start-up capital
According to another CNBC article, over 500,000 small- and medium-sized businesses sell their goods on Amazon on the US. Even during the current pandemic due to COVID-19, online sellers have seen record numbers. Obviously, many people are stuck at home and will browse Amazon for all types of items. In fact, Prime Day has seen traffic increase eight-fold for the retailer interviewed by CNBC. Sellers advertise their specials for Prime Day which help boost traffic for the two-day event.
Amazon is the world leader for online sales, with millions of people across the globe visiting the site on a daily basis. If you have something to sell, it only makes sense to get your products on Amazon. In fact, 58% of sales come from third party sellers. Just think about the last time you purchased something online. I’ll bet you checked out Amazon first!
Funding a start-up is always the toughest thing for would-be entrepreneurs. During these tough economic times, many people are looking at anyway to earn a living. However, banks are not willing to lend out funds as generously as before. Having great credit may not be enough to get the money you need to get your business off the ground.
The good thing about being a third-party seller on Amazon is the lack of overhead with a brick-and-mortar store. Obviously, the bigger you are, the more expenses you will have. If you don’t have funds and can’t get a loan, look no further than your retirement plan. There are a few ways you can utilize the money held in your 401(k) or IRA. Each has their own advantages, but some drawbacks as well.
The first two ways are dependent on the type of retirement plan you have and how involved you want to be in the business.
For those with a 401(k) plan, including those with a Solo 401(k), can borrow funds from the plan. You may borrow up to $50,000 or 50% of your account balance, whichever is less. Of course, your plan documents must allow for the loan option. Loans, including interest, get paid back into the plan on a quarterly basis. It’s a good option if you have the option. You are allowed to be involved in the business, and funds get returned back into your retirement plan.
If you have an IRA, you cannot borrow from the plan. You can take a distribution from the plan and use the funds for whatever reason you choose. If you have a traditional (pretax) plan, all funds withdrawn are taxable at your current tax rate. Further, if you are under age 59 1/2, you will incur a 10% early withdrawal penalty. If you have a Roth IRA (after-tax plan), you can withdraw your contributions at any time, without tax or penalty. Earnings will be taxed if you are under the age of 59 1/2, and a penalty will be due.
Using ROBS to Start an Amazon Business
The third option for using retirement funds for your business is ROBS, Rollover Business Startups. You can use existing retirement funds to start or expand your business. You don’t need to take a loan or a distribution. Your current IRA or 401(k) funds will be rolled over into a new business (it must be a C Corporation). Those funds can then be used as capital for your business. There is no cap on how much you can use and you can personally be involved in a business. Note: you can invest in a business with your retirement funds, however you cannot be involved in the business unless you utilize the ROBS structure.
With ROBS, you are allowed to earn a salary and guarantee a business loan – two things you cannot do with an IRA. You can use the funds in your new 401(k) plan to purchase stock in your new company. The sale of the stock to your 401(k) give the capital you need for your business. You can use the funds to purchase supplies, hire employees, get storage space, advertising and whatever else your business needs. You can go through the process to get your new business on Amazon. Start planning now to get ready for next year’s Prime Day!
If you have the next big thing or have a product that will sell, you can look at using ROBS to start an Amazon business. Don’t let the lack of capital keep you on the sidelines. Of course, you can still work at a regular job and run your Amazon store as a side business. Even better, your business may be enough so that you can quit your day job!
If you have any question about how ROBS works, please contact us @ 800.472.0646. Check out our selection of ROBS articles as well.