401(k) and IRA Rollover Financing (ROBS) Offered Free of Charge
LOS ANGELES, CA (PR Newswire) January 23, 2017: Read this before using your hard-earned retirement funds to start or buy a business.
By Michael Baumann, CEO & Founder, YourSBA.com, Inc.
Effective January of 2017, YourSBA.com offers small business financing using funds from your retirement account — for free. YourSBA.com will offer 401(k) and IRA rollover financing at no charge to users of its easy-to-use and free SBA lending platform, YourEdge™.
Michael Baumann is CEO and Founder of YourSBA.com, the starting place for SBA loans over $350,000 for the purpose of buying a business or expanding your company.
“We are forced to make this aggressive move because some of the banks on our SBA lending platform will not accept the providers popping up in Google searches and paid content financial publications,” says CEO and Founder, Michael Baumann.
Baumann goes on to say, “If you search for various terms related to ‘small business financing using retirement funds’ or other algorithmically favorable search terms, you will find companies offering this service for around $5,000. From a purely selfish business perspective, there is no reason for us not to absorb this cost in our typical structure of business acquisition financing from a combination of 401(k) or IRA rollover as down payment plus an SBA loan of more than $350,000.”
ROBS is an acronym from the United States Internal Revenue Service for the IRS ROBS Rollovers as Business Start-Ups Compliance Project. ROBS allow you to access up to 100% of your retirement funds, tax-deferred and penalty-free, to buy or start a business. Essentially, you invest in yourself and your business, and the retirement plan is a shareholder in your business. If you are successful, the retirement plan will profit.
THERE’S A REALLY DARK SIDE TO ROBS BY ITSELF
Without the combination of ROBS and an SBA Loan, relying on retirement funds as the sole source of proceeds to buy a business will most likely end in failure according to a study commissioned by the IRS and some Secretaries of State in 2010. This has been confirmed in another way by the managing director of one of the nation’s largest small business lenders, “business acquisitions under $150,000 generally don’t work,” says the unnamed source.
The exception to this “downside” may be when using ROBS to acquire a franchise operation which is a more tightly controlled acquisition atmosphere.
Dr. Chet Skamiera, M.D. is Director of Operations of YourSBA.com. Chet oversees the client experience with the SaaS platforms, YourEdge™, ForeverTrack™, LOAN for Banks and the SBA Loan Calculator suite.
Dr. Chet Skamiera, Director of Operations for YourSBA.com in Los Angeles says, “This is the missing component of our free service of obtaining SBA loans for the purpose of buying a business. We are excited to be able to offer our clients access to their retirement funds and will continue to look for ways to provide value to our clients.”
YourSBA.com’s service provider of the new ROBS service offering has been in business for over 25 years years and their ROBS have never been challenged. The company is committed to allowing you to access your retirement funds tax-deferred, penalty-free to capitalize a business without having to shoulder any responsibility or liability for matters that relate to the 401(k), ultimately allowing you to focus on building your business rather than worrying about dealing with the IRS or Department of Labor.
HOW IT WORKS
The Rollover as Business Startup Process can be broken down into five steps:
- Establish a new business as a C corporation. Note: a C corporation is the only legal entity that can have a retirement plan.
- Use the corporation to create a retirement plan, such as a 401(k), that can invest in a private company’s stock.
- Take the funds in your existing retirement account and roll them over into the new retirement plan. Note that by rolling the funds over to a different plan, rather than withdrawing the funds, you are able to avoid triggering a taxable distribution and early access penalties.
- Use the new retirement plan to purchase stock in the C corporation.
- Use the C corporation to acquire or start a business. Note: if you use the SBA loan program, which requires as little as 10% down, you can leverage the buying power of your retirement funds up to ten times.
COMPLIANCE / REGULATORY ISSUES
While the 5-step process above may sound simple, there are a number of compliance and regulatory issues that come with not only setting up the ROBS, but also (and often forgotten) maintaining the plan thereafter. Failure to comply with the technicalities of the Internal Revenue Code, Treasury Regulations, and Employee Retirement Income Security Act, will result in significant consequences. For example, if the IRS finds a problem with the ROBS arrangement, they can cancel the ROBS, making the rolled-over funds subject to early-withdrawal penalties and taxable distributions; as a result, the individual would have to pay back taxes for every year since the initial ROBS setup, plus a penalty tax.
CONCLUSION
ROBS unleashes the power of your retirement account to fund your business acquisition and has proven to be a successful investment for thousands of entrepreneurs across the country. Unfortunately, there are a number of big companies that focus mostly on the setup phase, leaving the client to fend for him/herself after setting up the ROBS, where one small mistake can cost a fortune. As a result, managing a ROBS is a task best left to experts well-versed in the regulatory process.
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