Small Business 401k Funding: Your Best Funding Option

When you start implementing a business plan, problems like funding and credit become as real as it ever gets. Small business owners may find it difficult to receive the necessary funding, especially with a declining number of small business lending institutions over the past couple of years. According to a report published by the U.S. Small Business Administration office, there were only 6,939 small business lenders in 2013 in comparison with 8,843 lenders in 2005.

Small Business 401k Funding

Small Business 401k Funding Facts

If you are a small business owner facing similar financial problems, small business 401k retirement plans could help you achieve necessary funding. Roll Over as a Business Startup (ROBS) or 401k business financing is a much discussed financing option among small business owners, though there have been some regulatory discussions over its legal structure. With the help of financial experts, you can use your retirement plan for funding your startup and structure it as per the latest government norms.

Small Business 401k Funding: What are the steps involved in Roll Over as Business Startup?

  • Establish a shell corporation, C-Corporation, which could later be associated with a qualified retirement plan.
  • Rollover funds from your existing IRA account or retirement plan to the newly created retirement plan, using tax exempted rollover methods.
  • After rollover, these funds are available for purchasing employer stock or company stock and your funds will be transferred to the corporation against the employer stock.
  • You can access these funds for funding your new business or franchise, while benefiting from tax exemptions applicable under rollovers and business investing.

Keep in mind that the whole structure of the process should follow the government regulations. For an instance, small business 401k plan enjoys filing exemptions (Form 5500) for account balance less than $250,000, however, if the funds are used for ROBS transactions, you will have to submit Form 5500, as it is the plan and not the plans owners that hold the ownership of the business. There have been several instances where plan owners or their plan providers have misinterpreted regulations, leading to legal issues. You will need an expert, who has a track record of successfully processing these transactions.

Small business 401k plans are suitable for business funding because of their higher contribution limits, allowing you to accumulate funds quickly. According to the IRS limits, you can contribute $53,000 to your Solo 401k plans in 2015 and make catch-up contributions of $6,000 for individuals above 50 years of age.

Disclaimer: This post is for informational purposes and we suggest using professional advice before going into a ROBS transaction. It doesn’t indicate our interest or availability of such financing solutions.