What is a ROBS, and how can you use one to your advantage as you grow your small business?
ROBS is an acronym for Rollover for Business Startups, a financial strategy that allows you to roll over your 401(k) funds into a new retirement plan established by your business—tax penalty-free. The business retirement plan uses the funds to purchase stock from your company that you could use for such things as salaries, inventory, and marketing expenses. ROBS funding carries many advantages over other funding options; learn more about how a rollover can benefit your business in the long term.
It’s Not a Loan
ROBS financing utilizes the funds that are already in your retirement account to start a new 401(k) in your business’s name. Since you are not borrowing money, you can bypass monthly loan repayments and interest payments, allowing you to spend that capital on growing your business. Plus, with no repayments, it’ll be easier to keep your business credit score in good standing.
There Are No Tax Penalties
If you’ve read the fine print on your 401(k) paperwork, you may already be aware that making early withdrawals can incur tax penalties and fees. However, because 401(k) small business financing merely moves money from one retirement account to another, the IRS does not view it as a withdrawal. You’ll get access to plenty of startup capital without needing to factor in taxes. There are strict rules that must be followed during setup and maintenance, so it is important to work with an established ROBS provider to help facilitate converting your retirement account into a business funding vehicle.
No Credit Score Check Required
Since ROBS is not a loan, there are no credit checks or long credit applications associated with other credit-based funding sources. As long as you have at least $25,000 in a pre-tax retirement account and the funds are rollable, you are eligible for ROBS.
It Offers Increased Financial Control
With a traditional 401(k), your retirement money is vested in stocks, bonds, and mutual funds. But when you roll those funds into a business account, you are investing in your business and creating greater access to and control over that money, meaning you can use it at your discretion.
It Speeds Up Business Success
When you start your business on a debt-free foundation, you’re likely to turn a profit much sooner than you would with a standard business loan. After all, you won’t need to factor loan and interest repayments into your business’s monthly budget. You can allocate those funds toward more growth-oriented strategies, as opposed to merely staying afloat.
If you have more than $25,000 vested in your 401(k) account, you’re a prime candidate for a Rollover for Business Startups. Enjoy the advantages of ROBS funding over other financing options by transferring your hard-earned money into an account that will help your business grow.
Interested in learning more about other financing options that may benefit you? Use Pango Financial’s funding solutions tool to check out the options for which you may qualify.