I would like to use my 401K and my roth funds as part of the purchase for my business

QUESTION: My name is Ted and I am in the process of purchasing a business and would like to use my 401K and my roth funds as part of the purchase funds for the business.  The business I will be purchasing has a building as well as equipment and a business.  I will be a 50% owner of the business and would also like to use other funds, non-retirement funds, to assist with the purchase of the company.  Can you/your company assist with the structuring of this transaction so I do not have to pay a government penalty or taxes?  What is the cost of such a program if you do assist?  How long does it take?   

Thank you for your assistance and response today if possible.

Sincerely,

 Fred in Texas

ANSWER: Here is some general information.  About using retirement funds such as a 401k plan to fund your own business.

Only pretax retirement funds may be used to finance a business that the 401k owner plans to operate; therefore, Roth funds do not qualify (both Roth IRA and Roth 401k).

The use of pre-tax retirement funds to finance one's own business is referred to as ROBS 401k (rollover as business start-up).  At a high level, this concept requires the use of a C-Corporation because the 401k buys stock (employer securities) in the C-Corporation. Even though and S-Corporation offers stock, the S-corporation regulations do not permit 401k shareholders.  

Regarding pricing, please click here.

Fund my business with 401k and IRA funds

BACKGROUND: My wife and I have a couple of i401K and IRAs and I was wondering how I can find out if they qualify for conversion into your program.

We each have our own separate businesses that we might want to fund.

I am also wondering if your program, in addition to making the funds available for my small business, if they remain protected via ERISA designated status.

Thank you for your help,

Jason in Dallas TX              

ANSWER: You can use your 401k and IRA funds to fund your existing or new business. The IRS refers to the use of retirement funds to finance one's business as ROBS.
  
 Only pretax funds and not Roth funds may be used to finance one’s business. Also, if you are looking to finance your existing business with retirement funds (e.g., 401k and traditional IRA funds), the existing business will need to be appraised to ensure the 401k pays/receives fair consideration.  

Lastly, only 401k plans that have common-law employees besides the business owner(s) and his or her spouse are afforded title I ERISA protection.

Thank you for your help,

Jason in Dallas TX              

ADDITIONAL INFORMATION

Using 401k or IRA funds to finance a business

Business Funding FAQs

Use retirement funds to finance insurance business

BACKGROUND: I’m interested in transferring my former employer 401k as well as rollover IRA funds for financing a business. I will be selling Aflac supplemental insurance products to businesses and their employees.  Aflac sales reps work on commission and are 1099 subcontractors.  This will allow me to have a more steady flow of income than real estate investing alone.

ANSWER: It appears that you do not qualify for the ROBS 401k (i.e., the use of rollover retirement funds including a 401k and traditional IRA funds) to finance a business because you are not funding an operating business.

By way of background, the ROBS arrangement requires that the funds are used for financing an operating business.

Instead, you appear to be self-employed as a 1099 employee of Aflac.  On the other hand, if you were planning to open an insurance agency franchise (e.g., All State franchise), then you would most likely qualify for the ROBS arrangement. 

However, because you are a contractor, you appear to qualify for a solo 401k which can be passively invested in real estate, but you could not use the funds for your personal use (i.e., use some or all of the profits generated from the solo 401k owned property for your personal use). The gains would instead flow back to the solo 401k.

Thanks,

Jim in Houston Texas

ADDITIONAL INFORMATION

How to use IRA / 401k Funds to finance a business

401k / IRA business funding FAQs