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ROBS Solution, or the Rollover Business Start-up (aka Rollers as Business Startups), allows you to invest funds from your retirement account into a new business/franchise. You can remove funds from a Traditional 401(k) or IRA Plan. The funds roll into your business without paying early withdrawal penalties or taxes.
If you’re an entrepreneur, you’ll benefit in many ways by using the ROBS option. With the ROBS option, you:
Won’t take on debt: You can always invest more money into your business which is crucial for start-ups. Remember, a ROBS isn’t a loan, therefore there’s no debt to repay.
Won’t pay penalties or taxes: With the Rollover Business Startup Solution, you can withdraw funds from your retirement plan before 59 ½ and not get taxed or incur penalties.
Receive Funding: Your credit score doesn’t matter, and typically other factors that may go against you aren’t considered. Your business receives funding when it needs funding. If you’re passionate about starting your business and you have a significant retirement “nest egg”, turn this into capital for your new business venture. The ROBS solution allows you to kickstart your new business by accessing the money in your retirement account.
Previously known as the Business Acquisition Solution (BACSS) at IRA Financial, the Rollover Business Start-up is a type of self-directed retirement solution. So why not use a Self-Directed IRA?
If you read about Self-Directed IRAs, you know that you are a disqualified person. As a disqualified person, you’re prohibited to use your retirement funds in this type of investment. It will trigger the Prohibited Transaction Rules.
The ROBS solution is the only way that you, a disqualified person, can use your retirement funds to buy or finance a business. This is because the ROBS solution takes advantage of an exception in the tax code, known as ‘qualifying employer securities.’ This allows you to use a 401(k) Plan to buy stock in a C corp.
Now that you know the benefits, it’s equally important to know how the Rollover Business Start-up can potentially hurt you.
The ROBS solution takes most of your retirement funds to invest in a new business venture. That’s extremely risky. As you may know, almost 50% of new businesses fail within the first five years. You can find these statistics from the Small Business Administration (SBA).
If individuals who use ROBS were to invest only a portion of their retirement funds into their new business venture, that wouldn’t be so bad. However, most people who use the ROBS solution use all or most of their retirement funds to get their business up and running.
Keep the discussion going. Do you think the ROBS solution is right to start your business/franchise? Speak with one of our IRA specialists today. We’re just an email or phone call away.
There are a few more advantages of using the ROBS solution that we have yet to touch on. For example:
While there are cons to consider, the pros of the ROBS solution can’t be ignored. If you believe this option is the best in starting or financing your business, our IRA specialists will set up your ROBS plan and fill out all the necessary paperwork for you. Contact IRA Financial Group today.