Three Options to Fund Your Private Business Venture

1) Rollovers as Business Startups (ROBS):

• ROBS generally allow eligible retirement funds to be invested in a business without triggering immediate income taxes or early withdrawal penalties, subject to applicable requirements.
• ROBS transactions generally do not require scheduled loan repayments. Retirement assets remain subject to the rules governing qualified retirement plans.
• Potential alternative to a traditional bank loan:
  • • You do not need a good credit score, or to pledge your home as collateral.

Qualifications:

• Eligibility depends on the type of retirement account and whether the assets are eligible for rollover. Individuals should consult their plan administrator and qualified tax professionals regarding eligibility.
• ROBS providers may have minimum retirement asset requirements, which vary by provider.
• The business must be structured as a C-corporation.
• Qualified retirement plans sponsoring a ROBS arrangement must comply with applicable employee participation and nondiscrimination requirements.

Creating a ROBS:

1. Create a C corporation.
2. Set up a company retirement plan for your new C corporation. 
3. Roll existing retirement funds into the new company retirement plan. 
4. Have the plan purchase stock in the C Corp via a Qualified Employer Stock (QES) transaction. 
5. Once the transaction is complete, the corporation may have access to the proceeds from the plan’s purchase of company stock.

Exiting a ROBS:

Exiting a ROBS arrangement generally involves valuing the company’s stock, addressing the plan’s ownership interest, properly terminating the retirement plan when applicable, distributing or rolling over remaining plan assets, and completing required filings. Professional assistance is recommended.

2) 401(k) Loan:

• The maximum 401(k) loan amount is the lesser of 50% of your vested account balance or $50,000, subject to applicable plan rules and exceptions.
• 401(k) loans must be repaid within five years, with payments made at least quarterly; longer repayment periods may apply when the loan is used to purchase a primary residence.
• Loan interest rates and other terms are determined under the plan’s loan provisions.

3) 401(k) Withdrawal:

• If you are younger than 59½, a 10% additional tax may apply to certain withdrawals, subject to applicable exceptions.
• Amounts withdrawn are generally taxable as ordinary income in the year of distribution, subject to applicable exceptions.

*The examples and concepts presented in this material are for educational and illustrative purposes only. Individuals should consult with their financial professional before making any decisions.