What is a Rollover Business Startup?
Financing a new or existing business using your own retirement funds is a funding mechanism called a RollOver Business Startup (ROBS). There is no specific, single rule that delineates a ROBS approach and no rule that prohibits it. Rather, the strategy uses regulations from several sources which, when pieced together in the right framework, allows individuals to invest their own retirement funds into a corporation that sponsoring employer’s properly drafted 401(k) plan.
A Rollover Business Startup is a viable funding strategy
A 401(k) Rollover Business Startup strategy is a viable funding strategy if the entrepreneur follows all legal requirements for establishing and operating 401(k) plans and for offering Qualified Employer Securities to employees.
Funding your Dream with Your 401(k)
A properly structured and administered ROBS arrangement can satisfy both the requirements and spirit of the tax laws and serve legitimate tax and business planning purposes. It is critical, however, that entrepreneurs who fund their businesses through Rollover Business Startup arrangements understand the possible legal pitfalls and take seriously their ongoing responsibilities as fiduciaries of their companies’ retirement plans.
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Frank Selden Law Resources
There is no specific, single rule that delineates a ROBS approach and no rule that prohibits it. Rather, the strategy uses regulations from several sources which, when pieced together in the right framework, allows individuals to invest their own retirement funds into a corporation that sponsoring employer’s properly drafted 401(k) plan.
IRS Resources
- IRS 2008 ROBS Memo
- Retirement News for Employers, Fall, 2010 (EPCU Project Summary on ROBS)
- ROBS Project Summary on IRS Website
- IRS memo excerpt on Adequate Consideration
- Revenue Ruling 59-60 (defines FMV)
- Internal Revenue Manual - Valuation of Assets in Defined Contribution Plans
DOL Resources
Other Resources
- Leading Retirement Solutions Blog
- FDIC Examination Manual excerpt on QES
- Examinations of Rollovers as Business Start-Ups (ROBS) Arrangements: A Guide to Surviving IRS Scrutiny*
*Reproduced with permission. Published March 21, 2011. Copyright 2011 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com
