We've all heard from the self-help gurus that we should be investing in ourselves, but many don't really test the limits of this advice. Investing tens of thousands of dollars into your business can be a huge risk, especially when using someone else's money.
This is where your 401(k) comes into play. Now, we know what you're probably thinking, considering it has been beaten into our brains since the day we entered the workforce. "I can't touch my 401(k) early, I'll get a huge penalty!"
When it comes to your 401(k) investments, you're along for the ride. There's not much you can do with your money until you retire, and you don't have any control over the success of your investments.
What if we told you there was a way to invest your 401(k) money in yourself, right now, with ZERO taxes or penalties?
This magical funding program is called ROBS, or Rollover as Business Start-Up. A pretty ironic name, as this funding strategy allows future business owners early access to 401(k) money without paying the IRS a dime in taxes or penalties.
If you’re looking for ways to fund your franchise, our team at Franchise Sidekick often suggests ROBS as one of our preferred methods. Using ROBS to fund your franchise pairs a smart investment with smart funding, a win-win for many of our clients.
What is the ROBS program?
It's important to know that ROBS is not a loophole of any kind. It's not a loan, there's no money owed, no interest, and no payback schedule. It's simply your money, rolled over to a new account.
Any time you change employers, you roll your 401(k) funds into your new corporation's retirement account. You can then use those funds to purchase shares of stock in your new company, which means liquid cash from that purchase is deposited directly into the corporation's checking account.
ROBS works the same way, but instead of rolling your 401(k) funds into someone else's business, you're rolling them into your own and purchasing stock in your new business. ROBS turns your 401(k) into pretax liquid capital, funded in 12-15 business days, and can be combined with other programs like SBA loans.
Benefits of Investing Your 401(k) using rOBS
We've already stated the obvious benefit of ROBS - early access to your 401(k) money with zero penalties. ROBS is an incredible way to bet on yourself and take control of your 401(k) investments. Let's recap all the great benefits of ROBS below:
- Turns your 401(k) into penalty- and tax-free liquid cash
- Start your business debt-free
- No loans or interest to pay back to someone else
- No credit checks
- Can use all or just a portion of your 401(k) funds
- Can take a salary from the funds
- See the funds hit your bank account in 12-15 business days
- Creative exit strategies: Could eventually sell your business and flow proceeds directly back into your retirement plan to minimize or eliminate Capital Gains tax
Things to know when considering ROBS
A few important things to note when thinking about tapping into your 401(k) using ROBS:
- Roth IRA funds cannot be used with ROBS, as it's already post-tax money.
- If you're still working for an employer, most of the time they will not allow you to take money out of their accounts while still employed. There are some case-by-case exceptions, but it's typically not approved.
It also goes without saying, but of course, there is risk involved with any funding strategy. Business ownership in general does not come without risk. The beauty of investing your ROBS money in a strong franchise brand is that you're investing in proven success. There is far less risk involved when buying a franchise than starting your own business or even investing in the wrong franchise concept.
Franchise Sidekick is here to help reduce that risk even further for our clients. We use proprietary technology to find and certify franchise brands, and pair clients with the best fit for their goals and lifestyle.
Take the next steps
Working with Franchise Sidekick means you are automatically connected to our trusted partners, like legal and funding experts that specialize in franchising. We're not just here to help you find your dream franchise brand, we're here to guide you throughout the entire process. The first step of our Sidekick 7 is financial assessment, where we discuss funding strategies and get you connected with a financial expert who can help you take full advantage of the ROBS program to fund your franchise.
So when considering the ROBS program, ask yourself if you want to continue betting on someone else's business (someone else's stock), or would you like to invest in yourself and your future?
We're with the self-help gurus on this one: invest in yourself. Franchise Sidekick will help you make sure it's a successful investment through franchise ownership.
