Did you know you can use your existing retirement savings to fund a franchise without tax or penalty from the IRS? This process – known as a 401(k) Rollover or ROBS (Rollover as a Business Startup) – could be an excellent option if you find yourself agreeing with any of these statements. By Jeff Waldera
Funding Your Dream
by Dallas Kerley
Entrepreneurs are dreamers, innovators, and go-getters. They are driven enough to start their own businesses. Many, however, lack the funding needed to open the doors. Or, do they?
There are plenty of ways to fund a franchise. Yes, you can borrow from the bank or find investors; of course, that means you’ll be starting your business in debt. But what if you had a pile of cash that allowed you to start your franchise cash-rich and debt-free? If you have money in a qualified retirement plan, you are cash-rich and can fund your franchise with a process known as Rollovers for Business Start-up (ROBS).
How does ROBS funding work?
A Rollovers for Business Start-up plan lets you use existing qualified retirement account funds, such as a 401(k), 403(b) IRA, or other qualified retirement vehicle, to fund your franchise tax-deferred and penalty-free. Because of the way a ROBS is structured, you can still contribute funds to a tax-advantaged retirement account as your business grows, enabling you to continue to plan for your retirement.
How do I get started?
Using retirement funds for your start-up involves four key steps:
Step 1: Establish a Corporation. In order to be eligible for a ROBS arrangement, you must form a new corporation.
Step 2: Create a New Retirement Plan. The corporation will sponsor a new retirement plan that has provisions allowing investments in the parent corporation stock.
Step 3: Transfer Retirement Funds. Once the plan is established, your existing retirement funds will be rolled over to the new plan. Because the funds are rolling from one qualified plan to another, no taxes are due and there are no withdrawal penalties.
Step 4: Launch the New Business. Once stock is purchased in the new corporation, you now have the cash to invest in your new franchise.
Tax Benefits. Under the ROBS plan, you maintain tax-deferred status and do not face any early withdrawal penalties.
Flexibility. The funds can be used for many different purposes. The money can be used as a cash injection for an SBA loan (Small Business Administration), to pay franchise fees, build or renovate a site, or buy equipment. You can even use the funds to pay yourself a salary. If you don’t need the money, don’t spend it—you aren’t required to use all the funds you’ve transferred.
Ease and Speed. In some cases, you can get access to your funds in as little as 10 days.
Funding isn’t dependent on your credit. Unlike other borrowing options, a ROBS doesn’t impact your personal credit. If you borrow any money for your business, your personal credit may suffer. Plus, if you have issues with your credit, you can still use the ROBS for your franchise.
Peace of Mind. Using your retirement plans means you are not incurring additional personal debt. And you’re spared the headache of negotiating with lenders for funding.
Need help figuring out how to best fund your franchise? Benetrends helps entrepreneurs make their dreams a reality. The ROBS program, known as the Rainmaker Plan®, provides guidance and support, so you can focus on your business. To learn more, visit www.benetrends.com.