Anyone accessed the Rollover for Business Startups (ROBS) funding approach?

[SeanP]

I am considering accessing the ROBS (roll over for business startups) program to roll my 401k into a 401k plan under my start-up without deduction or penalty where the funds are exchanged for common stock held by the 401k. Those funds can then be used to finance operating expenses for my company (everything except a wage for me).

Here is the formal description of the ROBS program: "A rollover for business startups (ROBS) allows you to invest retirement funds from a 401(k) or individual retirement account (IRA) into your business without paying early withdrawal penalties or taxes. A ROBS isn’t a business loan or a 401(k) loan, so there’s no debt to repay or interest payments to make. A ROBS isn’t a withdrawal from your retirement account or a loan against it. Instead, it’s a rollover that invests directly in your business."

Has anyone on the forum had experience (good or bad) with the ROBS program? Would love to hear before I make the decision on whether to pursue it or now.

Enjoy your Sunday.

Sean

 

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[SeanP]

Hi Tarec, thanks this is great! Guidant Financial is in fact the company I have been speaking to about implementing the ROBS plan. The challenge is that to bring any VC in the future, they have to be awarded common stock too. If VC investors are given preferred stock, it puts the 401k fund with common stock at a disadvantage and contravenes IRS rules around the ROBS program as I understand it.

Cheers,

Sean

 

[Tarec]

Hi Tarec, thanks this is great! Guidant Financial is in fact the company I have been speaking to about implementing the ROBS plan. The challenge is that to bring any VC in the future, they have to be awarded common stock too. If VC investors are given preferred stock, it puts the 401k fund with common stock at a disadvantage and contravenes IRS rules around the ROBS program as I understand it.

Cheers,

Sean

U are welcome.

From what I recall, the podcast was talking about acquiring a branded e-com store. It was a pretty straight forward process with the buyer's ROBS as any profit from the business would "roll back" to the 401k but I am not sure how it would work with a new start-up with VC involved. That, I can't, unfortunately, help you.