Unlocking Success: Navigating the ROBS Journey!
A Persuasive Essay on the Benefits of the ROBS Strategy
By: Eva Jiang, M.B.A., M.S.
Recently, DRDA hosted an enlightening webinar titled “Unlocking Success: Navigating the ROBS Journey,” aiming to demystify the ROBS (Rollover as Business Start-up) strategy for aspiring entrepreneurs. This essay argues that the ROBS strategy offers a unique and advantageous pathway for individuals to leverage their retirement funds to start or buy a business without incurring taxes or penalties. The webinar provided an in-depth exploration of the ROBS strategy, addressing common concerns and illustrating its potential benefits.
Setting the Stage for Success
The webinar began with the foundational steps necessary to ensure a distraction-free environment, emphasizing the importance of focused attention when dealing with complex financial strategies. Attendees were encouraged to silence their phones and find a quiet place, setting the stage for a productive session. The introduction of the Q&A chat box underscored the interactive nature of the webinar, allowing participants to engage directly with the experts, thereby enhancing their understanding of the ROBS strategy.
Expert Insights and Comprehensive Understanding
The session featured two distinguished speakers: Doug Dickey, a Partner at DRDA with credentials such as CPA, CVGA, and CEPA, and Bryan Uecker, the Retirement Plan Manager with qualifications including QPA, QPFC, AIF, and AIFA. Their combined expertise provided a thorough and reliable foundation for understanding the ROBS strategy. This high level of expertise is crucial for individuals considering using their retirement funds to invest in a business, as it ensures that they receive accurate and comprehensive information.
The Mechanics of the ROBS Strategy
Doug and Bryan explained the ROBS strategy in detail, highlighting its core components: forming a C Corporation, establishing a 401(k) Profit Sharing Plan, and rolling over retirement funds into this plan to invest in a new business. This approach allows individuals to use their retirement funds without incurring the taxes and penalties typically associated with early withdrawals. The ROBS strategy thus provides a viable and advantageous option for entrepreneurs who lack sufficient liquid capital but possess substantial retirement savings.
Addressing Common Concerns
A significant portion of the webinar was dedicated to addressing common concerns and questions from the attendees. These included:
Compliance with IRS Regulations: Ensuring compliance with IRS regulations is a primary concern for anyone considering the ROBS strategy. The speakers provided detailed guidance on meeting all necessary requirements, emphasizing the importance of adherence to avoid legal complications.
Eligible Retirement Funds: The types of retirement funds that qualify for ROBS were clarified, providing attendees with a clear understanding of their eligibility.
Tax Benefits: The tax advantages of operating under a C Corporation structure were highlighted, showing how the ROBS strategy can lead to significant tax savings.
Exit Strategy Costs: Insights into the expected costs of an exit strategy were shared, helping attendees plan for the future and understand the long-term financial implications of their investment.
The Value of Personalized Consultation
As the webinar concluded, DRDA offered attendees an exclusive opportunity for a complimentary one-hour consultation. This personalized advice is invaluable for individuals seeking to tailor the ROBS strategy to their specific circumstances. Such consultations can address unique challenges and provide customized solutions, further enhancing the appeal of the ROBS strategy.
Stay Connected
For those with additional questions, the speakers provided direct contact details. Bryan’s email and phone number were shared, along with a link to schedule a consultation. “We’re here to help you on your journey,” Doug assured, his sincerity resonating through the screen.
Bryan Uecker: bryan.uecker@drdacpa.com | 281-954-6004
Schedule a Consultation: Complimentary One-Hour Consultation
Final Thoughts
As the webinar concluded, there was a sense of accomplishment and excitement. The attendees had gained valuable insights into the ROBS journey, feeling more empowered to take the next steps in their entrepreneurial endeavors. The DRDA team was grateful for the opportunity to share their expertise and looked forward to continuing to support these aspiring business owners.
Thank you to all who joined us. Stay tuned for more from DRDA as we continue to help unlock success in entrepreneurial journeys.
- Published in ROBS 401(k), ROBS 401k Provider, Small Business, Starting a Business
Franchise Or Business Start-Up?
Which is the right fit for you?
Options and Opportunity
The ability to work for yourself, being in control and making the big decisions appeals to many people. You may just be starting your profession and dreaming of starting your own business, or you may have had a long and successful career and are longing for something more – additional money, greater flexibility or the chance to focus on doing something you enjoy.
Taking a risk and following your dream by becoming a business owner is an aspiration shared by many Americans. The first step in determining whether starting your own business or investing your time and money into a proven franchise is more your style is to begin with a self-assessment of your strengths, weaknesses, interests, skills and work/life aspirations. Do you work well in a more structured environment, or do you require freedom to create and innovate? Are you risk-averse and like having a support system, or are you more daring and hope to blaze a trail for others to follow one day?
Countless first-time entrepreneurs have the burden of whether to start a business from scratch or buy a franchise. The allure of being your own boss can be tempting; franchises and startups each pose their own challenges and benefits. Evaluating each option can help you get closer to realizing what the right venture is for you.
What Is a Franchise?
A franchise is a type of license that an individual or group (franchisee) acquires to allow them to have access to a business’s (franchisor) proprietary knowledge, processes, and trademarks in order to allow the party to sell a product or provide a service under the business’s Brand. In exchange for gaining the franchise, the franchisee usually pays the franchisor an initial start-up and annual licensing (royalty) fees.
How Franchises Work
When a business wants to increase its market share or increase its geographical reach at a low cost, it may create a franchise for its product and brand name. A franchise is a joint venture between a franchisor and a franchisee. The franchisor is the original or existing business that sells the right to use its name and idea. The franchisee is the individual who buys into the original company by purchasing the right to sell the franchisor’s goods or services under the existing business model and trademark.
Franchises are a very popular method for people to start a business, especially for those who wish to operate in a highly competitive industry like the fast-food industry. One of the biggest advantages of purchasing a franchise is that you have access to an established company’s brand name, meaning that you do not need to spend further resources to get your name and product out to customers.
Franchise Basics and Regulations
Franchise contracts are complex and vary for each franchisor. Typically, a franchise contract agreement includes three categories of payment that must be made to the franchisor by the franchisee.
- The franchisee must purchase the controlled rights, or trademark, from the franchisor business in the form of an upfront fee.
- The franchisor often receives payment for training, equipment, or business advisory services from the franchisee.
- The franchisor receives ongoing royalties or a percentage of the business’s sales.
It is important to note that a franchise contract is temporary, like a lease or rental of a business, and does not signify business ownership by the franchisee. Depending on the franchise contract, franchise agreements typically last from 5 to 30 years, with penalties or consequences if a franchisee violates or prematurely terminates the contract.
In the U.S., franchises are regulated by law at the state level. However, there is one federal regulation established in 1979 by the Federal Trade Commission (FTC). The Franchise Rule is a legal disclosure given to a prospective purchaser of a franchise from the franchisor that outlines all the relevant information in order to fully inform the prospective purchaser of any risks, benefits, or limits of such an investment.
Such information specifically stipulates full disclosure of fees and expenses, any litigation history, a list of suppliers or approved business vendors, even estimated financial performance expectations, and more. This law has gone through various iterations and has previously been known as the Uniform Franchise Offering Circular (UFOC) before it was renamed in 2007 as the current Franchise Disclosure Document.
Brand awareness
Building a brand is no small feat and can be quite expensive and time-consuming. When you sign on with a popular franchise, the work has been done for you. We all know some of the more popular brand franchises out there, and we’ve become accustomed to a certain set of standards from these businesses. Customers will seek out establishments for their familiarity and consistency that comes from patronizing these businesses over many years.
Additionally, if you are part of a nationally recognized brand, you automatically have the power of that franchise’s marketing and advertising dollars to support you. This can inevitably result in a faster time to market and quicker ROI. However, brand awareness comes with a price tag. Buying into one of these better-proven franchises can be expensive and require more startup costs than building your own business.
Site selection
Site selection is critical for many businesses. Most franchisors pre-approve sites for outlets. This may increase the likelihood that your location will attract customers. The franchisor, however, may not approve the site you want. If there’s a specific location where you want your business to be and it doesn’t match the franchise opportunities in that area, then you will have to find a location or territory that will be acceptable to both of you.
In addition, franchisors may impose design or appearance standards to ensure customers receive the same experience in each outlet. If you are passionate about creating a unique look and feel for your business, you may have a hard time following the guidelines set forth by the franchisor.
Training and support services
Perhaps one of the biggest advantages to buying a franchise is the training and ongoing support you receive from a franchisor. They can help with managing the day-to-day business, from hiring and training employees to overseeing the finances. Franchisors can help you learn to run a business rather than doing it on your own, which can lead to mistakes that affect your business’s bottom line – whether through the cost of time, money or both.
Costs, fees and contracts
Depending on the system, startup costs for a franchise can be steep. Many franchise owners find it necessary to secure financing to purchase their business. In addition, most franchisors require franchisees to pay ongoing royalty and/or advertising fees. The fees are attributed to training, support and marketing, of which a certain percentage of your profits will be allocated to the franchisor. Finally, when you buy a franchise, you sign an agreement that locks you in for a specified amount of time, anywhere from 5 to 30 years. Breaking a franchise agreement can be difficult and costly.
Financing
Owning any new business, start-up costs can be high and require infusions of capital if they encounter hardship. A business needs a good business plan, healthy cash flow, and solid financing to succeed. Most franchisees will have to apply for a business loan at some point, such as a loan backed by the SBA (Small Business Administration). But bank loans and SBA loans are still not easy to get even for franchise businesses, and the application and approval process can be prohibitively long for a lot of franchisees in need of quick capital. Some franchisors offer their own financing programs, but the practice is far from widespread, so you can’t necessarily depend on funding from your franchise brand.
For these reasons, many prospective business owners are turning to alternative funding for better financing options. DRDA BORSA™ Plan, a self-directed 401(k) plan which allows an individual access to their qualifying retirement funds TAX and PENALTY FREE to be used as equity for a business start-up, acquisition, or as capital for an existing business. The Plan offers a much faster time to funding than traditional bank loans, often receiving funds in your account within 30 days of initiating the plan. The Funds then can be used as a down payment for an SBA loan.
Autonomy
Buying into a franchise system requires you to run your business as dictated by the franchisor with little leeway for business decisions, including the look and feel, purchasing equipment and overall operating procedures. You may control your franchise unit’s culture and who you hire and fire, but you still must follow a prescribed set of guidelines.
To maintain uniformity and ensure future success within a franchise system, franchisors can be very diligent about enforcing policies and procedures. The franchise system they created is their most valuable asset. If following and adhering to a prescribed set of operating instructions to run your business is not something you are envisioning, then franchising may not be the path for you.
Purchasing power
Having brand-name backing allows you to benefit from the collective buying power of the franchise when it comes to purchasing equipment and supplies. This can be critical for finding the right supplier and negotiating deals. Franchisors can also help you with determining what equipment you need, the right size and the supplies you’ll need.
At the same time, a franchisor’s requirement for you to purchase equipment and inventory only from approved suppliers will limit what you can purchase as well as your ability to purchase something at a discounted price from another dealer.
Challenges & Advantages
There are many advantages to investing in a franchise, as there are advantages in starting your own business. Widely recognized benefits to buying a franchise include a ready-made business operation. A franchise comes with a built-in business formula including products, services, even employee uniforms and well-established brand recognition. Depending on the franchise, the franchisor company may offer support in training and financial planning, or even with approved suppliers. Whether this is a formula for success is no guarantee.
Business owners, by definition, may not have any ongoing costs to an investor in the form of a percentage of sales or revenue, but they do have to expense their marketing, training, processes, and systems in place. Thich can equate to the same percentage range of 4% to 8% royalty fees required by the franchisee. Other equivalents would be location control or creativity with an owned business. Territories are defined by the Franchisor and approved based on area and region of similar brands within the geographical distance. The business owner must conduct market research and competitive analysis in order to establish a consensus of where to locate, and how to promote their brand. Other factors that affect all businesses, such as poor location or management, are also possibilities.
Franchise or Startup
As a franchisee, you will be signing a long-term contract with your franchisor and creating a relationship through which you will need each other to succeed. It’s critical you do your research and ensure your core values and goals align with those of the franchisor.
If you don’t want to carry on somebody else’s idea for a business, with a host of regulations, procedures, systems in place and rules you must follow as part of your agreement, you can start your own. While founding your own company has plenty of potential rewards, both monetary and personal, it is also at greater risk. When you start your own business, you are on your own, and much is unknown. Will the product sell? Will customers like it? Will I make enough money to survive?
If you choose to build your own business, then you won’t be as constrained by the franchisor/franchisee relationship, but you also will not receive the support you may need down the road. If your business is going to survive, you alone will have to make that happen. To turn your dream into a reality, you can expect to work long, hard hours with no support or expert training. If you try this on your own without any experience, the deck is stacked against you. If this sounds like too big a burden to bear, the franchise route may be a better choice.
People purchase a franchise because the model often works. It offers careful entrepreneurs a stable, tested model for running a successful business. It also requires them to operate on someone else’s business model. For those with a big idea and a solid understanding of how to run a business, launching your own startup presents an opportunity for personal and financial freedom.
So, startup or franchise? As you can tell the decision is very dependent on the professional and personal experience you want to gain through this next venture. There are merits and perils with each, but at the end of the day, only you can make the right choice for yourself.
Are you interested in learning more about DRDA’s ROBS structure, the BORSA™ Plan? Give Bryan Uecker a call today at 281-954-6004 for a free consultation.
- Published in ROBS 401(k), ROBS 401k Provider, Small Business, Tax
Harnessing the Advantages of the ROBS / BORSA Structure.
PART I: C-CORP
By: Bryan Uecker, QPA, QPFC, AIF, AIFA
ROBS (Rollover as Business Start-up) or BORSA™ (Business Owners Retirement Savings Account) structures are exclusively compatible with C-Corps. This is because only C-Corps permit a 401(k) profit-sharing plan to serve as a shareholder. Upon discovering this exception, some prospective clients may feel disappointed, as the C-Corp often carries a stigma of “double taxation”. Historically viewed as “the entity choice of last resort” due to potential for double taxation resulting from corporate-level taxes and subsequent taxation upon distribution or liquidation. The good news is that C corporations present unique tax advantages that S corporations and partnerships cannot replicate.
To debunk the stigma of “double taxation” right up front, a helpful chart compares the corporate tax and dividend tax to profits through a pass-through entity at a personal tax rate of 37%:
So the issue is not how many times you are taxed……but rather how much tax you pay.
Now that we have cleared up the myth, here are ten benefits of a C-Corp:
1. Lowering Overall Tax Burden: C Corps can achieve significant tax savings thanks to a single flat corporate tax rate of 21%. By proactively managing dividends and salaries, business owners can optimize their tax burden, generally resulting in lower overall taxes than pass-through entities.
2. Flexible Fiscal Year: C Corps can choose their fiscal year, unlike LLCs and S Corps. This allows for better timing of income recognition and expense deductions, enabling shareholders to further minimize their tax burden.
3. Retaining Earnings for Growth: C Corps can reinvest profits within the company at a lower tax cost. Unlike S Corps, where profits are passed through to shareholders and taxed regardless of distribution, C Corps can retain earnings to fuel future expansion without immediate tax consequences.
4. Deducting Salaries and Bonuses: Shareholders of C Corps can receive salaries and bonuses, which are deductible expenses for the corporation. Businesses can optimize tax efficiency and mitigate double taxation concerns by structuring compensation packages appropriately.
5. Tax Write-offs for Fringe Benefits: C Corps can deduct 100% of medical premiums and other fringe benefits provided to employees. This includes health, long-term care, and retirement plan contributions, offering substantial tax savings opportunities for the corporation and its employees.
6. Charitable Contributions Deduction: C Corps can deduct charitable donations as business expenses, subject to certain limitations. This benefits worthy causes and provides tax advantages for the corporation, with the option to carry over excess contributions to future tax years.
7. Gaines: C Corps are taxed at a flat 21% on short-term and long-term gains so you no long have to carry economic risk to get to a lower tax bracket. You sell you capital asset when it is best for you. C Corps can carry forward capital and operating losses indefinitely to offset future profits. This flexibility allows businesses to smooth out tax liabilities over time, particularly during growth or economic downturns.
8. Fewer Ownership Restrictions: Unlike S Corps, which have strict ownership rules, C Corps can have unlimited shareholders, issue multiple classes of stock and be owned by anyone or anything. This flexibility facilitates equity financing and business expansion without the constraints imposed by S Corp regulations.
9. Favorable Treatment for Passive Investors: Passive investors in C Corps benefit from the inability to pass losses through to individual tax returns. Unlike S Corps, where active participation is required to claim losses, passive investors can still enjoy tax advantages without direct involvement in management.
10. Unique Financing Opportunities: Registering as a C Corp opens doors to diverse financing options, including public offerings and innovative strategies like 401(k) business financing, such as ROBS or BORSA™ plans. These financing avenues give businesses access to capital while minimizing debt obligations, offering a valuable alternative to traditional lending sources.
With over four decades of experience, DRDA, LLC has focused on supporting entrepreneurs in initiating, expanding, and selling their businesses. Leveraging our proficiency in accounting, business consulting, and retirement plan design, we harness the advantages of the ROBS/BORSA™ structure to benefit our clients throughout the operation of their business and at their succession transition or exit of their business, not just at formation.
By: Bryan Uecker, QPA, QPFC, AIF, AIFA
- Published in Business Lending, ROBS 401(k), ROBS 401k Provider, Small Business, Starting a Business
Delving into Required Minimum Distributions (RMDs) for 401(k) Plans: Understand the New Rules
By Bryan Uecker, QPA, QPFC, AIF, AIFA
A Required Minimum Distribution (RMD) is the mandated withdrawal amount from certain retirement accounts on an annual basis after reaching a specific age. These rules were established by the government to prevent retirement accounts from being used solely for estate planning purposes to transfer wealth to beneficiaries upon the account holder’s death. It’s crucial for participants in 401(k) plans to grasp these regulations as failure to comply with RMD requirements can lead to tax penalties imposed by the IRS.
Understanding the “Required” Aspect of RMDs:
An RMD must be distributed from your 401(k) account each year once you reach a designated age. However, if you’re still employed when you reach this age, your plan might allow you to postpone RMDs until retirement.
RMD Age or Retirement:
The age for commencing RMDs is determined by your birth year:
– Born before July 1, 1949: RMD age is 70 ½
– Born after June 30, 1949, and before January 1, 1951: RMD age is 72
– Born in 1951 through 1959: RMD age is 73
– Born after 1959: RMD age is 75
However, you might be able to defer your initial RMD beyond this age if you’re still employed by the plan sponsor and don’t own more than 5% of the business. Owners with more than 5% ownership must start RMDs at the designated age.
RMD Deadline:
Typically, you must receive the RMD by December 31 of the relevant year. However, the first RMD can be delayed until April 1 of the following year if it’s the later of reaching RMD age or retiring (if allowed by the plan and you’re not a 5% owner).
RMDs Upon Death:
Regardless of whether you’ve reached RMD age, distributions must be made from your 401(k) account upon your death. Beneficiaries usually have ten years to withdraw the full amount, though some, like spouses or minor children, might be eligible for extended payment periods.
RMDs with BORSA®:
For many BORSA® clients, employer securities make up the bulk of their 401(k) balance. The corporation can repurchase shares to cover the RMD, or the participant can opt for an “in-kind” distribution in employer securities equivalent to the RMD’s fair market value. The participant is subject to ordinary income tax on the in-kind distribution and holds the stock personally.
RMDs and Roth 401(k) Accounts:
Starting with the 2024 RMDs, Roth 401(k) accounts are not subjected to the same RMD rules. Prior to 2024, Roth 401(k) accounts followed the same rules but were non-taxable.
By Bryan Uecker, QPA, QPFC, AIF, AIFA
- Published in ROBS 401(k), ROBS 401k Provider, Small Business
Discovering Financial Excellence: Why DRDA’s Tailored Solutions Stand Out
By: Eva Jiang, M.B.A., M.S.
Looking for financial services that exceed expectations? Look no further than DRDA. Our comprehensive range of services encompasses tax planning and compliance, audit, accounting, bookkeeping, QuickBooks, 401(k) plan, Third Party Administration, BORSA® implementation, Operation and Exit, Profit and Cash Flow Optimization (P+CFO®), and Business Value Acceleration.
DRDA Wheel of Services
Because of our commitment to professionalism and uniqueness, we offer several trademarked services, including RMaP, BORSA, STEP, P+CFO, ARM, POD and LMS. At DRDA, we pride ourselves on our ability to make a difference in our clients lives. These trademarked services represent our dedication to providing cutting-edge solutions that are tailored to the needs of each client.
When you choose DRDA, you’re not just getting cookie-cutter solutions. Our team understands that every business is unique, which is why we take the time to truly understand your individual needs. We believe in open communication and collaboration across departments, ensuring that your experience with us is seamless and efficient.
Our tax services cover everything from planning and compliance to resolution, helping you navigate complex tax laws to minimize liabilities and maximize savings.
Our accounting services are tailored to your specific needs, providing accurate and reliable financial reporting. From auditing, assurance and financial statement preparation to budgeting and forecasting, our team helps you understand and trust your business information systems.
Our bookkeeping services ensure that your financial records are organized and up-to-date, allowing you to focus on what you do best – running your business. And if you use QuickBooks, our consultants can optimize your software usage, from setup and customization to training and ongoing support.
In addition to traditional services, our business advisory team offers strategic guidance to drive growth and profitability. Whether you need help with TPAS (Third-Party Administrative Services), retirement plan, BORSA® implementation (ROBS), business planning, performance analysis, or risk management, we’ve got you covered.
At DRDA, we don’t believe in a one-size-fits-all approach. DRDA Business Solutions are tailor-made for your business, saving you time and money while ensuring maximum efficiency and effectiveness.
Of the more than 46,000 CPA firms in the United States, DRDA has been recognized as one of the Top 500 CPA Firms in the United states by Inside Public Accounting, DRDA is ready to serve you. Visit our website at www.drdacpa.com to learn more about how we can help you and your business succeed and thrive.
By: Eva Jiang, M.B.A., M.S.
- Published in P+CFO™, ROBS 401(k), ROBS 401k Provider, Small Business, Starting a Business, Tax
Lost Your Job Due to The Pandemic? Start, Purchase or Fund your own business today.
Lost your job due to the pandemic? You’re not alone.
Research shows that, as of July 2021, unemployment rates have not yet recovered (5.4% vs. 3.5% pre-pandemic). There’s no better time to get started investing in your own business with DRDA’s BORSA™ plan.
Avoiding Early Withdrawal Taxes & Penalties
Normally, if you withdraw money from your 401(k) before the age of 59½, you are liable to pay income taxes and a 10% early withdrawal penalty on your money. The Business Owners Retirement Savings Account will allow you to take control of your 401(k), IRA, or other qualified funds and use them to start, purchase, or fund a business tax or penalty free.
What types of funds are eligible?
Not only does the BORSA™ Plan work with a traditional 401(k), DRDA can also assist you with rolling over the following into a business:
- 401(a)
- 403(b)
- 457
- IRAs ( with exceptions for Roth or Non-spousal inherited IRAs)
- Pension
- Profit Sharing
- ESOP
- Annuities
- Thrift Savings Plans
I’m ready to start my business! How does this process work?
- Form a new C Corporation
- The new C Corp. will establish a 401(k) Profit Sharing plan
- Existing retirement funds will be rolled over into the new 401(k) plan
- Participants in the 401(k) plan will invest in stock of the newly formed C Corp.
This process typically takes around 30 days from the initial engagement, to the time you will receive your funds in hand.
Have more questions, comments, or are you ready to get started?
If you’re ready to get started or have any additional questions, please register for our FREE webinar (September 8th, 1pm CST & September 9th, 5pm CST) below:
- Published in Business Lending, ROBS 401(k), ROBS 401k Provider, Uncategorized
Finance Your New Business During the Pandemic
BORSA, finance your new business during the pandemic
How can you make BORSA work for you? Now may be a great time to explore ROBS, or the Rollover Business Startup Solution and what it can do for you during the pandemic.
Key Points
- Start a new business or franchise
- Legally pay yourself a salary
- Abide by IRS and ERISA guidelines
What is the BORSA Plan?
The BORSA (Business Owners Retirement Savings Account) is DRDA’s Solution otherwise known as ROBS (Rollover Business Startup Solution), an IRS and ERISA approved structure that allows investors to use their retirement funds for a new business or franchise that they will be personally involved in. It is the primary way a retirement plan holder can have personal involvement in a business utilizing their retirement funds, without triggering IRC prohibited transaction rules.
Setting up a BORSA Plan requires planning but can be accomplished in relatively few steps.
- Set up a C Corporation – The process begins by establishing the new corporation, using the proper legal structure to support the establishment and operation of the company’s qualified retirement plan.
- Rollover your funds – Transfer your funds from an old IRA or 401(k) plan into a new 401(k) plan that the stock of the start-up C corp. business sponsors or adopts.
- Start earning a salary – You must be an employee of your new business and provide a legitimate service. Your compensation must come from your business.
How Do BORSA and Pandemic Relate?
While there’s a pandemic, millions are losing their jobs and joining the ranks of the unemployed. More than ever, many are trying to rely on themselves and not some corporate entity that must make difficult decisions to comply with federal and state mandates affecting individual earning, security, and livelihood. Using BORSA can be an ideal way to start the business of your dreams with money you already have.
BORSA can help you fund a new business or franchise with retirement funds, and that means you’re starting on your way to owning and fulfilling your goals. When COVID-19 hit, no one could have anticipated it would bring the unprecedented upheaval of everyday life that it has.
How Does BORSA Work?
The BORSA Plan allows an investor to create a C Corporation, and the C Corp’s profits are taxed separately from the owner as it is owned by shareholders. Next, funds are transferred from an old IRA or 401(k) plan. Then, as an employee providing a legitimate service, you are able to earn a salary at the business you’ve created.
There are very specific IRS and ERISA rules that have to be followed, and for this reason guidance is recommended. DRDA can help you get started. When it’s time for your new company’s stock to get valuated by the IRS, DRDA will help value the stock of the new or existing company.
BORSA Benefits
More than almost anything else, Americans are looking to make certain they can make it through the pandemic, civil unrest, and the whole of the current situations currently embroiling the nation. For those who have lost their jobs and have been unable to find replacement work, tapping into their retirement funds have been one source of income to help. But what happens when the funds have been depleted?
More than just taking funds out, though, BORSA can help you open a franchise or start a new business you can own yourself. Your money is helping you and your family first. The primary benefit of using the BORSA Plan is that you can employ it to use your retirement funds to invest in a business you will be personally involved in. You can do this without paying tax on the retirement funds you wish to use as a distribution.
Additionally, investing in yourself within your retirement portfolio is an excellent way to diversify. Your investments in traditional assets such as stocks and bonds, and alternative assets such as cryptocurrency, exist separately, and you can fund your own business as well. This may protect investment portfolios as a whole during times of unrest and market volatility,
During the COVID-19 and now the Delta Variant financial crisis, it’s important to know where your money is and what it’s doing. While investing in the market and traditional assets can bring you financial success, it’s very volatile at this time. Alternative assets like real estate can help diversify your portfolio. And using the BORSA Plan to fund your dreams can help you even more.
If you are interested in receiving more information on the BORSA™ plan, DRDA will be hosting a webinar on September 8th and 9th, 2021.
Click Here to sign up and access this FREE webinar.
- Published in Business Lending, ROBS 401(k), ROBS 401k Provider, Small Business, Starting a Business, Uncategorized
Your BORSA Plan and the CARES Act
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted to address the
financial difficulties that have resulted from the COVID‐19 pandemic. Included in this law were provisions that
provide special coronavirus related distributions (CRD) for qualifying plan participants. Below is a brief summary of the new CRDs available and new loan provisions to qualifying participants.
Coronavirus Related Distribution:
Qualifying participants can request a distribution of up to $100,000 from the retirement plan without incurring a
10% early distribution penalty. There is no age requirement and you can take coronavirus‐related distributions
whether actively employed or not. You can request the entire amount in a one lump sum, or multiple payments, but all must be taken by no later than December 30, 2020.
There is a federal tax withholding requirement of 10%, but you may choose to waive it completely or withhold a
different amount at the time of distribution. The amount of distribution is subject to federal tax, but you will be able to spread the taxes owed on the distribution over three years.
You may repay the entire amount distributed to you within three years. This opportunity allows you to repay
some or all of the distribution to any qualified plan or IRA that accepts rollovers as a way to minimize your income
tax liability. This is different than a loan in that there is no interest and no periodic payment requirement, and the
ability to repay does not require an election at the time of distribution. Repayment can be in a single lump sum or
via installments of different amounts at different times, but the repayment window only runs for three years from
the date you first receive the distribution.
It is important to emphasize that this new CRDs only apply to individual plan participants that meet certain requirements. If you should choose to utilize either of these provisions, you must certify that you meet one or more of the conditions listed below.
You have experienced adverse financial consequences as a result of:
• having been diagnosed with SARS‐CoV‐2 or COVID‐19 by a test approved by the Centers for Disease Control and
Prevention,
• a spouse or other dependent (as defined in section 152 of the internal revenue code) being diagnosed with
SARS‐CoV‐2 or COVID‐19 by a test approved by the Centers for Disease Control and Prevention,
• being quarantined,
• being furloughed,
• being laid off or having work hours reduced,
• being unable to work due to a lack of childcare,
• being an owner of a business who has had to close the business or reduce hours worked in the business due to
the COVID‐19 virus.
Increase of Maximum Loan Amount
Under current rules the maximum loan amount available is the lesser of 50% of vested account balance or $50,000
reduced by the highest outstanding loan amount in the previous 12 months. The new rule increases the maximum
loan amount to the lesser of 100% of vested account balance or $100,000 reduced by the highest outstanding loan
in the previous 12 months. This provision has been incorporated into our plan but will expire on September 23, 2020.
The loan must still meet all other requirements and limitations set forth under the plan.
Loan Payment Suspension
Qualifying participants who currently have loans outstanding or who take new loans can suspend their loan
payments for the remainder of 2020. It is important to know that interest will continue to accrue on any loan where
payments are suspended.
Re‐Amortization of Loans with a Final Payment Date that is Later than 12/31/2020:
If a loan is suspended under
this provision, the loan will be re‐amortized to include the accrued interest and extend the loan duration for 12
months beyond the original final loan payment date. This re‐amortization will result in a new loan payment amount.
Payments, using this new payment amount, will begin as of the first payment due date in 2021.
Example: Loan with an original first payment date of 3/15/2018 with a final payment date of 3/15/2021. Payment
is suspended as of 4/15/2020 for the remainder of 2020. New payment is calculated by including the accrued
interest for the period 4/15/2020 through 12/31/2020 and by extending the final payment date to 3/15/2022.
Payments resume on 1/15/2021, using the new payment amount.
Re‐Amortization of Loans with a Final Payment Date of prior to 12/31/2020:
If a loan is suspended under this
provision, the loan will be re‐amortized to include the accrued interest and extend the loan duration for 12 months
beyond the original final loan payment date. This re‐amortization will result in a new loan payment amount.
Payments, using this new payment amount, will begin 12 months after the date of the suspension.
Example: Loan with an original first payment date of 9/30/2017 with a final payment date of 9/30/2020. Payment
is suspended as of 4/15/2020 for the remainder of 2020. New payment is calculated by including the accrued
interest for the period 4/15/2020 through 3/31/2021 and by extending the final payment date to 9/30/2021.
Payments resume on 4/15/2021, using the new payment amount.
Please note that this document was prepared based on our best interpretation of the law. Additional guidance from regulators is likely. This guidance may result in the information presented in this document being inaccurate.
If we receive information that is conflicting with what we have stated here we will send that information to you and post it on our website www.drdacpa.com. In the interim, please call us if you have any questions or if we may be of any assistance.
- Published in Business Lending, ROBS 401(k), ROBS 401k Provider, Small Business
How to Use Retirement Funds, Tax and Penalty Free, to Purchase a Business
For most entrepreneurs, the most difficult part of starting a business is not coming up with an idea but financing the start-up. Over the past few years, many lenders have tightened their requirements for small business loans, leaving some would-be owners out in the cold. Another option is available, namely using your retirement funds to finance a business startup or providing the equity lenders need to make a loan.
In most instances using retirement funds will incur taxes and penalties, however there are three ways in which you can avoid both:
- Using a Roth IRA if you are over age 59 and the Roth IRA has been open at least five years
- 401(k) Loan Option
- Using a BORSA plan also known as Rollover on Business Startup Solution (ROBS)
Roth IRA
Taking a Roth IRA distribution may not be the most efficient way to fund a business, but it does have a potential advantage as it could help avoid taxes on the gain from the money used.
401(k) Loan Option
Some 401(k) plans allow you to borrow against your retirements account. This feature works well only if a small amount of money to start a business is required. Plans with this option allow participants to borrow the lesser of $50,000 or 50% of the vested value of your plan assets. The loan must be fully repaid within five years, via payments that are at least quarterly, at market interest rates.
ROBS
ROBS is the most flexible way to fund a fledgling business. To understand this structure you have to understand provisions of the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code (IRC). The plan should be approved by both the Department of Labor (DOL) and the Internal Revenue Service (IRS). This approval comes in the form of a Favorable Determination Letter from the IRS.
This method is a great way to fund a business, especially if more than $50,000 in a qualifying retirement account is available. If less than $50,000 is available, taking a loan against the investment may be a better option. ROBS may be used for business acquisition, working capital or as a down payment for additional financing. If you meet the criteria, it is usually the most cost-effective method, plus there is no requirement to repay the money especially in those early years of operation.
Setting up a ROBS involves rolling over a pre-tax IRA or 401(k) plan account into a new 401 (k) sponsored by a “C” Corporation. The rollover funds are then invested into the stock of the “C” Corporation. The account holder can then earn a reasonable salary as an employee of the business.
Starting or buying a new business is complicated. Using your retirement money to fund a business is a viable option but also adds a layer of complexity that you need to understand. Your best plan of action before you do anything is to consult with someone who understands the pros and cons of each of these options. DRDA, PLLC – CPAs has provided these services to thousands of entrepreneurs and we would be happy to discuss this option and help you determine what method works best for you. Contact us to learn more about BORSA (Business Owner’s Retirement Savings Account), our exclusive ROBS plan that allows investors to access their 401(k) funds tax and penalty free.
- Published in ROBS 401(k), ROBS 401k Provider, Starting a Business
How to Finance a Business with an SBA loan and Retirement Funds
Entrepreneurs seeking to finance a startup company often look to the Small Business Administration (SBA) for the funding they need to get their company up and running. One of the most beneficial ways to get the funds needed is to use a 401(k) financing, also called a Rollover on Business Startup (ROBS), in conjunction with an SBA loan. The ROBS process allows the borrower to leverage retirement funds without incurring any tax or penalties. SBA loans and ROBS have advantages as stand-alone instruments but when they work in conjunction with one another, they can provide even greater buying power and flexibility
Advantages of SBA Loans
The SBA generally does not make direct loans to entrepreneurs. Rather, it provides a guarantee to lenders for the money they loan to start the business. This guarantee protects lenders by promising to pay the loan if the business owner defaults. SBA loans are a popular form of financing because the interest rate is lower, typically 6% to 9% and offer longer repayment terms than other forms of financing. These loans do have qualification criteria starting with a required credit score of at least 680 along with a strong financial and industry experience history.
The SBA requires would-be business owners to have a minimum 10% down payment on all SBA loans, however, many lenders providing SBA loans may require a down payment of 20-30% of total startup coasts. For an average size loan, the down payment will be between $40,000 to $120,000.
How ROBS Helps to Secure an SBA Loan
ROBS allows entrepreneurs to use retirement funds to start or buy a business with money that has been invested in a 401(k), IRA or other qualified account as a down payment for an SBA loan without triggering any tax penalties. Using a ROBS account to fund your down payment also makes it easier to qualify for an SBA loan As long as you have at least $50,000 in a retirement account that can be rolled over in a ROBS account you may qualify for this type of funding.
When you combine a ROB account with an SBA loan, you’ll access capital from two different sources, thus reducing the amount needed from each. You’ll save money on interest and reduce your monthly payment. Securing a loan with ROBS can allow you to become debt-free sooner, putting you on the road to profitability.
Make ROBS Management Easy With Our BORSA Plan
Funding your business with a ROBS account requires several necessary steps, including the establishment of a “C” Corporation. Ongoing management is also necessary to ensure that you remain in compliance with all regulations (i.e. DOL, IRS, etc.). DRDA’s BORSA (Business Owner’s Retirement Savings Account), an exclusive ROBS plan that allows investors to access their 401(k) tax and penalty free will help set up your financing and perform the necessary ongoing work to make sure you remain in compliance with all ROBS requirements. Contact DRDA for more information and a consultation.
Contact us to learn more about BORSA (Business Owner’s Retirement Savings Account), our exclusive ROBS plan that allows investors to access their 401(k) tax and penalty free.
- Published in ROBS 401(k), ROBS 401k Provider, Starting a Business
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