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13 Jan 2017
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What's the Minimum Amount to Access In a ROBS Type Plan

DRDA CPAs & Business Consultants provide a self-directed 401k profit sharing plan (The BORSA Plan) which allows entrepreneurs to access retirement funds tax and penalty free if they are being used to buy, start, or recapitalize an active business.

 

Many of my prospects are interested to know if the amount of funds they are accessing for a ROBS (Rollovers for Business Startup) type plan is appropriate.  In our opinion the minimum amount to access from retirement funds is $50,000.  Our opinion is based upon the entrepreneur being under 59 1/2 which would create a 10% penalty and the tax is assumed to be 30% (most of my prospects are in that bracket).  In Texas this would create a tax/penalty erosion of 40%.  In other states with state income tax the tax/penalty erosion amount will be higher.

 

If we compare chasing out below age 59 1/2 and taking the tax/penalty hit to utilizing a BORSA Plan at an upfront cost of $4,995 and $1,550/year in compliance costs for 10 years the client will come out ahead at $50,000 and above.  Below the minimum of $50,000 a BORSA Plan does not make economic sense for my client.

 

I typically see $100,000-$200,000 moving.  It's also important to know that the client can roll an entire plan, portions of a plan, more than one person can be rolling into the plan - none of which affects the fee or the timing of our work.

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