Using retirement funds to start a business

Did you know that you can use retirement savings—without penalty—to start a business? You can withdraw money from your 401(k), IRA, 403(b), or other qualified retirement account without penalty, upfront taxes, or debt. These funds can be used to purchase a franchise or as capital required to secure an SBA loan.

This process, called ROBS (Rollover as Business Start Up), allows a business owner to invest in themselves and their businesses by essentially “rolling over” their existing 401(k) or IRA retirement funds into a new retirement plan that invests in their new C Corporation.

Here are a few things to consider when exploring this tax-deferred and penalty-free funding option:

ROBS funding is not a distribution.
The IRS does not consider taking existing retirement funds and moving them to another investment a taxable distribution—even when the destination is your new C Corporation’s retirement plan. Thus, you won’t incur a penalty at tax time for taking a premature distribution.

ROBS helps you start your business with improved cash flow and business equity.
ROBS funding is not considered debt once you open your doors for business. Less debt equals more money available for operational expenses such as inventory and salaries, not to mention more initial business equity. Less debt is always an advantage for a business owner.

ROBS funding can be used with other loan types.
ROBS funding is often used in tandem with other loan types, including SBA loans. In other words, ROBS plays well with others.

ROBS funding frees up time for the business owner.
Once your C Corporation is set up, you won’t have to spend time worrying about making payments, keeping an eye on interest rates or worrying about financing, The plan administrator for your new C Corporation will handle the management details and free up your time.

ROBS funding takes full advantage of provisions of the Tax Cuts and Jobs Act.
Corporations funded by ROBS take full advantage of the reduced corporate tax rate that was part of the 2017 Tax Cuts and Jobs Act. The permanent business income tax reduction from 35 percent to 21 percent is good news for American businesses.

As with any financial decision there are pros and cons to consider, but it’s a great idea to look into all available funding avenues. I am happy to introduce you to experts in the ROBS field.