401k/IRA Loans
401k/IRA Loans, otherwise known as Rollover Business Start Up (ROBS) Loans, or Self-Directed 401(k), is a method of unlocking your retirement savings to start a business or to recapitalize an existing business.
Free Consultation – No Obligation
401k/IRA Loans
One of the additional services we provide at CSB Capital Funding is the ability to tap into your 401k, IRA, or virtually any retirement saving plan, to start or grow your business. The beauty of the solution is it is PENALTY-FREE and will not count as a taxable distribution.
What Is a ROBS Loan?
In 1974, Congress passed the Employee Retirement Income Securities Act (ERISA), which works in conjunction with specific sections of the Internal Revenue Code (IRC) to allow for the use of a 401(k) plan to invest in Qualified Employer Securities (QES) — which then allows an individual to fund a business.
How does a ROBS Loan Work?
- 1. Form a Corporation
We will help form this corporation or work with your attorney during the formation process
- 2. Corporation Sponsors a 401(k) Plan
We help you form a unique 401(k) Plan designed to allow for investment into your corporation. This 401(k) Plan has been pre-approved by the IRS.
- 3. Rollover to a New 401(k) Plan
We will help you through the process of moving your retirement funds from your previous employer’s 401(k) or IRA into the new 401(k) plan.
- 4. 401(k) Plan Invests in the Corporation
Your new 401(k) Plan purchases stock in the corporation. This 401(k) Plan now holds stock in the corporation and the business is debt-free and cash-rich from the sale of the stock. At this point, the corporation will now be able to purchase your business or franchise.
How Can I Use My ROBS Loan?
The funds can be used for ANY business expense AND to pay salary, as long as the business is for-profit.
How Can I Qualify for a ROBS Loan?
You must have $50,000 or more in a retirement fund(s) that is NOT from your current employer.
What Are The Advantages of a ROBS Loan?
- You invest some portion of your retirement funds in your business, giving you more control over the performance of your retirement plan assets.
- You use a safe, proven plan, based on long-standing provisions of the Internal Revenue code.
- You gain business equity and an improved cash flow position from the start.
- You accelerate business profitability by managing the amount of debt your new business takes on.
- You secure funding fast – typically 4-5 weeks or less.
- You can set aside tax-deductible retirement savings up to $66,000 per year. For those 50 and over, an additional $7,500 can be contributed ($73,500 total)*
- You optimize business equity and value.
* This amount adjusts annually
What Are The Disadvantages of a ROBS Loan?
- Investing your funds into a business means they are out of the market, so in a rising market you miss out on the growth.
- If the business fails, you risk losing the retirement savings invested in the ROBS.*
- The business must be a C Corporation which may require more strategy and planning to avoid potential corporate tax.
* fortunately, these losses are pre-tax
Pros
- Start a business without debt payments
- This is not a loan (you are purchasing shares in your company with your retirement savings)
- Invest in yourself, not the stock market
- Get access to funds quickly (4-5 weeks)
- The funding is penalty-free (not a taxable distribution)
- Available for individuals with $50,000 in qualified retirement funds
- You can still save for your retirement, even more so, using your new 401(k) plan
Cons
- If you business fails you'll lose the 401k funds you transferred into the new plan
- You business must be a Type C Corporation
- You must file a Form 5500 or Form 1120 annually
What is a ROBS Loan?
In 1974, Congress passed the Employee Retirement Income Securities Act (ERISA), which works in conjunction with specific sections of the Internal Revenue Code (IRC) to allow for the use of a 401(k) plan to invest in Qualified Employer Securities (QES) — which then allows an individual to fund a business.
How does a ROBS Loan Work?
1. Form a Corporation
We will help form this corporation or work with your attorney during the formation process
- 2. Corporation Sponsors a 401(k) Plan
We help you form a unique 401(k) Plan designed to allow for investment into your corporation. This 401(k) Plan has been pre-approved by the IRS.
- 3. Rollover to a New 401(k) Plan
We will help you through the process of moving your retirement funds from your previous employer’s 401(k) or IRA into the new 401(k) plan.
- 4. 401(k) Plan Invests in the Corporation
Your new 401(k) Plan purchases stock in the corporation. This 401(k) Plan now holds stock in the corporation and the business is debt-free and cash-rich from the sale of the stock. At this point, the corporation will now be able to purchase your business or franchise.
How can I qualify for a ROBS Loan?
You must have $50,000 or more in a retirement fund(s) that is NOT from your current employer.
What are the advantages of a ROBS Loan?
You invest some portion of your retirement funds in your business, giving you more control over the performance of your retirement plan assets.
You use a safe, proven plan, based on long-standing provisions of the Internal Revenue code.
You gain business equity and an improved cash flow position from the start.
You accelerate business profitability by managing the amount of debt your new business takes on.
- You secure funding fast – typically 4-5 weeks or less.
- You can set aside tax-deductible retirement savings up to $66,000 per year. For those 50 and over, an additional $7,500 can be contributed ($73,500 total)*
- You optimize business equity and value.
* This amount adjusts annually
What are the disadvantages of a ROBS Loan?
- Investing your funds into a business means they are out of the market, so in a rising market you miss out on the growth.
- If the business fails, you risk losing the retirement savings invested in the ROBS.*
- The business must be a C Corporation which may require more strategy and planning to avoid potential corporate tax.
* fortunately, these losses are pre-tax
Pros and Cons of a ROBS Loan
Pros
- Start a business without debt payments
- This is not a loan (you are purchasing shares in your company with your retirement savings)
- Invest in yourself, not the stock market
- Get access to funds quickly (4-5 weeks)
- The funding is penalty-free (not a taxable distribution)
- Available for individuals with $50,000 in qualified retirement funds
- You can still save for your retirement, even more so, using your new 401(k) plan
Cons
- If you business fails you'll lose the 401k funds you transferred into the new plan
- You business must be a Type C Corporation
- You must file a Form 5500 or Form 1120 annually
Frequently Asked Questions
Can I only use 401(k)/IRA Funds or can other retirement funds be used?
Any “qualified” type of money can be used including: 401(k), IRA, 403b, 457, SEP, Pension Plans, Thrift Savings Plan (TSP – Military), Annuities, KEOGHS
Can I use funds from more than one qualified retirement plan?
Yes. The money can come from multiple sources (e.g. one 401(k) and two IRA’s.
Can I use funds from a Roth IRA or an inherited IRA?
No. Roth and Inherited IRA’s are not allowed funding sources.
Can I use the retirement funds from my current employer?
No. The retirement source accounts must be from a previous employer.
Can I use funds from my spouse or business partner?
Yes. As log as your spouse or business partner’s retirement accounts are NOT from their current employer.
Ready to take the next step and use your 401k/IRA to start or fund your business?
Free Consultation – No Obligation
