Independence is something we long for, almost from birth. Whether that’s taking your first steps as a child to buying your first house as an adult, the freedom of being on your own marks the transition from dependence to independence in a poignant way. Many business owners are looking for financial freedom in the form of independent funding sources that don’t require taking on significant loans with accompanying repayment schedules, interest and fees.
Qualifying pre-tax retirement funds – such as 401(k), IRA, Keoghs, 403b and other types – can be used in this IRS-approved funding method on a debt-free, penalty-free and tax-deferred basis. This stand-alone funding option is often called 401(k)/IRA Rollover funding, Self-Directed 401(k) Funding or ROBS (Rollover as Business Startup) funding.
Here’s how it works:
- DEBT-FREE: 401(k)/IRA Rollover funding is not a traditional loan and thus you don’t incur debt or a repayment schedule when you rollover your funds to new investment opportunity (your new business), leaving your new business free to reinvest any free cash flow.
- PENALTY-FREE: ROBS funding is not a distribution of your retirement funds and is not subject to any early withdrawal penalties. Using a ROBS also means you are using creditor protected assets – your existing retirement dollars – to fund your C Corporation. If you close your business, your remaining retirement funds not invested in the business are protected from seizure to satisfy the remaining business debt.
- TAX-DEFERRED: Just as this option is penalty-free, it is also a tax-deferred option in that you be liable for taxes on the rollover amount in the following tax year as taxable income.
And, when you use a ROBS plan to open a new business, buy a franchise, purchase an existing business or recapitalize an existing business, you not only become a business owner you are also eligible to participate in the company 401(k) plan just like all other eligible employees can. Plan participants are allowed to contribute a percentage of their income on a pre-tax basis each pay period. That means that in addition to your tax savings for offering the plan and providing matching contributions, you’ll receive yet another tax savings for participating in the plan yourself.
Tenet Financial Group has nearly eight decades of combined funding experience to its credit and our talented and dedicated team can help you determine if ROBS funding suits your current needs. We can also assist with other funding options such as SBA loans based on your individual situation. Contact us today to speak directly with a senior consultant – 888-901-3335.