Considerations For A Rollover As Business Startups Transaction

So when you’re thinking about getting into a ROBS transaction, which involves using retirement assets to invest into your business without any penalties or taxable event, you want to consider the cost for those services.

Typically we recommend that people have at least $35,000 in their retirement account before using this transaction. Because the cost of services ranges from as low as $3,000 upwards of $10,000, with an average being around $5,000 for this type of transaction. So if you have less than $35,000 it typically makes financial sense just to take the penalties and the taxes versus paying the fees for these services.

So when you’re getting into the $50,000 to $100,000 mark it absolutely makes a ton of sense to use this transaction to save a lot of money to get your business off the ground. So the market is definitely growing in the sense that people are more interested in these type of transactions.

Because they see the huge cost savings as well as the huge benefit of them using retirement funds versus investing in the stock market, where you could definitely lose money, but you might not make a lot of money either.
Same here. You can definitely lose money, but you’ll also gain a lot of money too if you have a successful business. Which most business owners believe they will have by going into business in the first place. Now where we’re not seeing a lot of success is with financial planners. A couple reasons why.

One, a lot of financial planners don’t have the existing capabilities within their current investment options, such as Charles Schwab, Fidelity, won’t allow for these types of transactions to take place within their own ecosystem. In addition to that, they might not want you to go through this transaction because they can’t make points off of the investment in your own business. Meaning they can’t charge you percentage of what’s invested that’s invested into your own business. So they’re losing potentially $1,000 to $2,000 by allowing you to go through this transaction.

But some financial planners, who are a little bit more long term, might see that hey, if this client has a successful business, he’s offering a 401K to his new employees. Now he has the potential offer services to his existing client and the new employees. So it’s a great way for a long term strategy for a financial planner to get into this.

Not a lot of financial planners see it that way. And also a lot of financial planners are limited with their current ecosystem of products to offer. Where we are getting a lot of traction is CPA’s. While they’re very skeptical at first, once they understand the transaction they get really jazzed about it. Because it’s a really cool, interesting strategy that not a lot of people know about it.

And then they also tend to refer people over to us. And as far as a CPA is concerned, they don’t really have to do any more extra work they wouldn’t have to do for a normal C-Corporation or startup business anyway. So they like it a lot too.

And then as far as a long term for this product, it still hasn’t been fully come into the light of legal ramifications or any lawsuits or anything like that. Where other alternative retirement investment products have. However the IRS has in 2008 vetted the product in the sense that they looked at it, saw it as an industry, and they didn’t say it wasn’t illegal.

They said that if you are going to do it, make sure you follow these specific guidelines. And you can look that up online and find it on the IRS website under ROBS. Or rollover as business start-ups is the technical term that they have used for it.

So the marketplace is definitely growing. There’s a huge shift towards a strategy for start-ups. And there’s a lot more acceptance in the community for CPA’s and then hopefully down the road with financial planners.