. The CARES Act contains special provisions for those that obtain their SBA loan by September 2...
ROBS compliance guide
When you make the choice to employ the structure for a business/franchise, there are criteria you must adhere to and things you should never do with the structure.
The BORSA™ Plan is founded on the ROBS platform
It is an IRS and ERISA approved structure. With this structure, you can use your retirement funds to capitalize in a new business/franchise, or existing business that you have personal involvement in. Because of an exception under Internal Revenue Code (IRC) section 4975(d), also known as qualifying employer securities, when you employ the Rollover for Business Startup solution, you will not trigger the IRC prohibited transaction rules for using your retirement funds in your own business venture.
Below is a list of what you should do to stay IRS compliant and benefit most from the Rollover for Business Startup.
1. Maintain an Active Business
Ensure that you run an active operating business/company. It cannot be a passive business, such as certain real estate ventures, nor can it shift into one. Additionally, your business must be legal on a federal level in order to employ the ROBS solution.
2. Be an Active Employee
In order to stay IRS compliant, you must be an active employee in your business. That means you must draw a W2 salary from the C Corporation. Perhaps during the build-out phase when you’ve not got any customers yet, you may pay yourself a nominal salary with increases as your business begins to have revenue. If you would like assistance with determining a “reasonable” salary would be please let your BORSA advisor know.
3. Offer 401(k) Plan to Employees
It’s important to give your employees the option of participating in an employer-sponsored 401(k) plan, and you should never make it difficult for them. Plus, all employees must have the same investment options. If it is available to owners, it must be available to all employees.
When you offer a 401(k) plan, you increase your chance of hiring individuals best equipped for the job, and you better retain key employees. Additionally, you receive tax benefits by offering a 401(k) plan and participating in one.
4. Be Aware of ROBS Audit Risk
Though the ROBS structure it completely legal, they are quite complicated to set up on your own. If you don’t set it up properly, or fail to maintain the allowed structure, you can face an IRS audit. If the IRS deems that the rules were broken, then the entire amount of the transaction may be taxed. Note that there is less than a one percent chance that your ROBS will be audited. DRDA BORSA™ Plan ensures that you’re ROBS structure will be completed and maintained properly.
5. File Your Rollover for Business Startup Documents Annually
One thing you must remember to do is file all the necessary documents and tax returns for your business every year. Generally, you must file your corporate taxes on your own. Other forms, such as the 5500, will be completed and returned by your plan administration service. Failure to file these documents annually will lead to unnecessary tax consequences.
To be clear, all the responsibilities you have as a business owner will be there. In addition, when using the Rollover for Business Startup to invest in a business, you must make sure all rules are followed. The tax bill may be hefty if you don’t. DRDA BORSA™ Plan will always make sure this doesn’t happen to you!
Success with The BORSA™ Plan
Getting started with ROBS is only the beginning. Whether you used your retirement funds to start a new business or to invest in an existing one, you must make sure to follow all IRS rules. Failure to do so will lead to unnecessary taxes and penalties. Here at DRDA we offer the BORSA Guarantee to protect you. If a question arises, our experts will work diligently to get you the correct answer and keep you IRS-compliant.
Do not hesitate to get in touch with us via our contact page or by calling (281) 954-6023. We are here every weekday from 8am-5pm. We are always available for all of our clients’ needs, big or small.
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