ROBS: A Life Changer for Your Retirement?

Steve McDonald By Steve McDonald, Bond Strategist, The Oxford Club

Two-Minute Retirement Solution

There’s an option for retirement account owners that almost no one talks about, and if you plan to start your own business in retirement, it can be a life changer.

It’s called “rollover as business startups” (ROBS).

Here’s how it works…

It allows you to rollover your IRA or 401(k) and invest in a new business or franchise or put money into an existing business.

Here are the nuts and bolts of the process…

This may sound simple enough, but you should use an attorney to set this up.

You form a C corporation that allows for shareholders, and a new 401(k) plan is created within it.

You rollover your existing retirement account to the new 401(k), and you purchase stock in your C corporation with the money in the new 401(k).

Before we go any further, the greatest risk associated with this should be jumping out at you… If the business fails, you could jeopardize your retirement.

ROBS is not an option for a whim or a dream. Rock-solid investment and business practices only!

But if you’ve done your homework and know this is a go for you and yours, here are the benefits…

There’s no debt.

You won’t have a monthly nut hanging over your head. Not only does that make life nicer if you hit a rough patch, but the bank won’t be knocking at your door demanding payment.

There’s no collateral or loan approvals.

A ROBS plan is for those who have money in the bank but might not meet the usual requirements for a business loan.

And, if you’re smart, you won’t need partners.

I could write a book about the people I know who took on partners in new businesses and lived to regret it.

And of course, there are several important negatives:

  • You are risking all or part of your retirement.
  • There will probably not be any returns or income from your retirement money for some time.
  • A C corporation is traditionally used for larger companies and is different from what most small businesses use. Make sure it fits your tax situation.
  • Setting up this kind of operation is not cheap. Expect to pay around $5,000.
  • You’re open to more IRS scrutiny. Audits for this kind of business are more frequent.
  • And if errors are made when the C corporation and rollover are set up, you risk having the whole thing become a taxable event.

But if going at it alone is your goal and you have a chunk of cash in your retirement account, you could do worse than investing in yourself.

ROBS: It could be the best investment in yourself since your college loans, but make sure it’s done right.

Good investing,

Steve