ROBS (Rollover for Small Business)

[Corey Kane]

ROBS (Rollover for Small Business)

I wanted to check with the group to see if anyone has an opinion or ever used ROBS (Rollover for Small Business) to purchase a business such as a laundromat? This would be an alternative to traditional financing.

A ROBS allows you to withdraw funds from your 401k without penalty to buy a business as long as you comply with the rules set forth by the IRS.

I spent 15 years in corporate America and was fortunate enough to contribute to a 401k. Life changes and have been a self-employed Contractor for over 10 years and no longer contributing to my 401k and am about 15 years from retirement. So I worry that the funds in my retirement are at the mercy of the daily stock market fluctuations and I may be left with nothing.

That being said, I feel like if I bought a fairly stable business like a laundromat, my retirement funds would be better protected, I could pay myself an annual salary and hopefully see appreciation in the business when it’s time to sell. So any gains lost in the stock market would ideally be offset by the annual salary I take as well as any appreciation in the value of the business.

While I have done my due diligence on this and have spoken to ROBS specialists, I would really appreciate any feedback on this strategy and would be very interested to know if anyone has ever used a ROBS. Thank you.

[Raymond Laroche]

It is an interesting concept. I would not risk my retirement funds without a wealth of knowledge and proven effective experience. It seems you could find other ways to finance

[Los Angeles-Orange County]

I rolled my corporate 401k account into a self-directed IRA. I use the self-directed IRA for investing in real estate and other ventures. There are of course strict rules you have to follow that do put in place restrictions so you need to understand the details to see if this will work for you. For example, you can’t co-mingle personal and SDIRA money and there are challenges if financing is used to purchase the business. None of these are show stoppers, you just need to be aware of and play by the rules.

[John Cooper]

I am using a ROBS plan to finance my first laundromat. I worked with a firm called Benetrends. They pioneered the ROBS plan. The steps are generally as follows:

1) Set up C corporation
2) Set up benefits plan (long term 401k savings plan for business)
3) Set up a transfer fron 401k/IRA into benefits plan
4) Benefits plan “acquires” stock in the company
5) Invests said money into business
6) Money gets transferred intop busines checking accoutn and is available.

I also took advantage of another twist. I took the money and converted to a Roth IRA. I take the tax hit this year, but every penny of the proceeds form a sale of the business gets flipped into a ROTH IRA tax free…… Call me and I can share more details.

John Cooper
305-322-4443
[email protected]

[Corey Kane]

Thank you all for your input!

[Corey Kane]

Greg,

I am also interested in buying real estate. However with ROBS, the rules are strict and you must
generate at least enough work for you to log a minimum of 1000 hours in a 1 year period. The IRS does not want to see this as a passive investment of the rollover funds, it needs to be an active business.
Are there similar restrictions with the SDIRA? Thanks

[Corey Kane]

Thank you John. I definitely would be interested in learning more from you. My only hesitation is setting up a C Corp and the potential double taxation. I’m wondering if it can be converted to an S Corp? I’d love to hear more about converting the funds to a ROTH IRA. I look forward to touching base with you. Thanks

[Los Angeles-Orange County]

The self directed IRA is different from the ROBS. There are no requirements related to number of working hours per year. There are strict requirements related to leverage (taking a loan to leverage SDIRA funds), participation by family members, etc. Details are widely available on the Internet by doing a search for self-directed IRA rules.

[Brian]

Hi — late to the party on this one. But I am using a ROBS thru Guidant Financial to fund part of the laundromat i am building out. If there are opinions or questions I can help with still, please let me know
brian

[Chris Hart]

How is Guidant to work with and what is the cost to ‘borrow’ your IRA money? I have looked at ROBS to meet a funding gap between my cash and what the bank wants to give me and didn’t think I was ready to make it as complex as John C mentioned at the top.

[Brian]

Guidant was awesome to deal with. You will have a rep assigned to you to guide you through the process and it seems like they have an answer for every question you would have. In terms of the steps John C outlined — those are the steps but Guidant is holding your hand every step of the way and you only work with companies that understand ROBS. (e.g when the funds are held in a bank during the time between the 401k getting funded and when it moves to your business bank accounts)

The Guidant service costs $5k up front to set up the 401k plan that will fund your business. After the plan is active, the monthly admin costs are $139 per month. Also note that when you set this up you can choose to offer a 401k benefit to your employees.

They set up 2 entities – 1 is the 401k that funds the business, and the other is the C-corp that runs the business.

Whatever $ you take out of your existing retirement plan goes in to that 401k that was set up and buys shares in the business It is set up that you could also put other money in as well as bring in $ from outside investors…everyone would own the % of the company aligned with the initial investment and share price.

You do sacrifice some of the things you can benefit from in doing an LLC b/c in terms of personal expenses being run thru the business. But ultimately i decided I would bet a piece of my retirement that I could get better returns on a laundromat than I would leaving it invested in the market.

Selfishly, if you go the Guidant route, I’d love for you to drop my name in the referral field b/c I can get a years worth of admin fees for free. But I would tell you the same thing regardless of whether that incentive was there or not.

[Chris Hart]

Thanks. Now I have a few questions for my accountant…

[Corey Kane]

Well said Brian. The only things I would add is that I believe there’s a $50,000 minimum (correct me if I’m wrong). Also I am not too keen on setting up a C Corp. as an S Corp. is much better for its tax advantages. I’ve heard down the road you can convert the C Corp. to an S Corp. but not sure if that’s true or how it works. Brian I’d be interested in speaking with you in greater detail about this.

[Brian]

I’m not sure about the minimum. Because ROBS was the way I could pull the deal off, i just had to accept the C-corp. Ideally in the future I can raise funds in another company and “buy” the company from my 401k (majority shareholder) at that point they’d appraise the business and hopefully there would be a gain and that gain would be tax-sheltered in the 401k. all stuff for the future, gotta focus on getting this store open now 🙂 Happy to chat, but honestly I don’t know a ton of the details…i’d say it’s worth some time on the phone with guidant talk about potential future conversion to an S corp.

[Steve Andrews]

I used Guidant for my ROBS on my first laundromat as well. They have been great! It really has been a good experience so far (into year 3). I always explain to anyone who asks about it like this. “I am a partner with my 401K in my business. However, my 401K is the majority stock owner.”

[Jame Amenda]

It’s a good idea

[Juan]

IDK, contingent on the cost of the mat Vs how much is invested this could go one of 2 ways with of course the entity “setting it all up” being the only winners as they take their cut right off the top.

The risk, albeit semi calculated is still there in that you could loose your funds in either scenario, Stock market vs owning a laundromat. The latter which if it ends up not being the dream you wished for becomes a bit of a nightmare.

I chose to do both. Neither of which is easy but I certainly continue to enjoy my career until now, going on 36 years here soon.

Good luck.

[Jaid Boyer]

I personally haven’t used a RIBS before, but I have heard of people using it successfully. I think the key with any investment is diligence and the fact that you understand all the rules and requirements involved.

[Jaid Boyer]

“I personally haven’t used a ROBS before, but I have heard of people using it successfully. I think the key with any investment is diligence and the fact that you understand all the rules and requirements involved”
It sounds like you’ve already spoken with ROBS specialists and have done your research, which is a great first step. If you hesitate about it, you could schedule an appointment with the advisor to help you make a wise decision.
I hope you find some valuable insights and opinions from the group. Good luck

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