{"id":69943,"date":"2023-10-27T10:13:29","date_gmt":"2023-10-27T10:13:29","guid":{"rendered":"https:\/\/chancespin.org\/?p=69943"},"modified":"2023-10-27T10:13:29","modified_gmt":"2023-10-27T10:13:29","slug":"your-exiting-robs-strategy-6-step-guide","status":"publish","type":"post","link":"https:\/\/chancespin-org.staticserve.dev\/your-exiting-robs-strategy-6-step-guide\/","title":{"rendered":"Your Exiting ROBS Strategy 6-Step Guide"},"content":{"rendered":"
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Rollovers for\u00a0Business\u00a0Startups (ROBS)<\/strong> is a funding method that provides small business owners with flexible and debt-free financing.<\/strong> ROBS utilizes your own retirement funds, such as those in a 401(k), Individual Retirement Accounts (IRAs), or other\u00a0qualified retirement plans. But what\u2019s the best exiting ROBS strategy?<\/p>\n

Initiating ROBS funding\u00a0requires a very specific set of steps. Briefly, you set up your business as a C Corporation and establish a new retirement plan (open to you and all other employees in it), usually a 401(k). (That\u2019s why ROBS is also known as 401(k) funding.) You then roll over your retirement funds into the new company\u2019s retirement plan to avoid triggering taxation on your funds. The new 401(k) then purchases shares in the C Corp., where you can access the funds for a wide range of business purposes. Watch our Everything You Need to Know About ROBS Webinar for more.<\/strong><\/p>\n

Given the detailed setup required for ROBS funding, what happens if you want to exit ROBS?\u00a0Well, there are also certain steps you must incorporate into your exiting ROBS strategy<\/strong>.<\/p>\n

Because it\u2019s important to get it right, you\u2019ll want to enlist professionals in your exit strategy. <\/strong>Your ROBS plan administrator is the best for the job \u2014 and ROBS providers like Guidant Financial can make your exit strategy simple.<\/p>\n

How does Rollovers for Business Startups (ROBS) work? Explore the ins and outs of ROBS \u2014\u00a0and its structure \u2014\u00a0in our <\/strong>Complete Guide to How ROBS Works<\/strong>.<\/strong><\/p>\n

Having a ROBS exiting strategy is essential for entrepreneurs who\u2019ve utilized retirement funds to finance their businesses. The ROBS structure \u2014\u00a0while advantageous for startup and small business financing \u2014\u00a0comes with its own set of regulations and potential tax implications. As the business matures or if circumstances change, you might need to repurchase their stock, dissolve the business, or seek other financial avenues. <\/strong><\/p>\n

An effective exit strategy ensures that business owners can navigate these transitions smoothly, comply with all legal and financial requirements, and protect their retirement assets from unnecessary penalties or tax burdens. Let\u2019s look at why a business owner might want to exit ROBS. There are several potential scenarios:<\/strong><\/p>\n

Your business is doing well, and you\u2019ll continue to run it. Still, you\u2019d prefer the ROBS funds back in your retirement account rather than funding the company.Your business is doing well, and you want to sell it, either as a whole or sell off specific assets.Your business is doing well, but you\u2019ve determined that another type of corporate structure would be more advantageous than a C Corp.Your business is failing, and you must close.<\/p>\n

What is ROBS, anyway? Here\u2019s a simple break down Rollovers for Business Startups (ROBS) in a nutshell \u2014 from its core benefits to potential drawbacks<\/strong>.<\/p>\n

\"Graphic<\/p>\n

Your exiting ROBS strategy can be a critical decision \u2014\u00a0and that\u2019s why it\u2019s important to understand the available pathways. Two prevalent ROBS exit strategies stand out: a buyback termination and insolvency termination. <\/strong>The buyback termination involves the business owner repurchasing their stock from the retirement plan, essentially removing the ROBS structure. Learn more about how exiting the ROBS structure works here. <\/strong><\/p>\n

On the other hand, an insolvency termination occurs when a business fails and becomes insolvent, leading to the dissolution of the ROBS arrangement. Let\u2019s take a closer look at the nuances of a buyback and insolvency termination:<\/strong><\/p>\n

A Buyback Termination<\/strong><\/p>\n

Although there are four scenarios here, there are just two basic ROBS exit strategies. The first is usually known as a\u00a0buyback termination.<\/strong>\u00a0As the term implies, in a buyback termination, you buy back the company stock you used ROBS to purchase. You then have your funds back (Scenario 1). You can also proceed with selling all or part of your business unencumbered by ROBS requirements because ROBS will no longer be in effect (Scenario 2).<\/p>\n

A buyback termination also covers Scenario 3. Businesses frequently change their entity type. Let\u2019s say you want to scale back and become a sole proprietor or incorporate as an S Corp to reap the\u00a0pass-through taxation\u00a0possible with an S Corp but not a C Corp.<\/p>\n

ROBS will only work legally with a C Corp. If you determine at some point that another business type is more advantageous than a C Corp, you will have to dissolve ROBS, because you cannot change to another business entity type (an S Corp, a partnership, a limited liability corporation, or a sole proprietorship) and retain ROBS, per the IRS.<\/p>\n

To utilize ROBS, your business needs to be registered as a C Corp. But what is a C Corp and how does it work? What benefits does it bring to a business? Discover C Corps here.<\/strong><\/p>\n

An Insolvency Termination<\/strong><\/p>\n

The second type of ROBS exit is known as an\u00a0insolvency termination. <\/strong>If your business is failing and you must close its doors (Scenario 4), an insolvency termination is the company\u2019s ROBS exit strategy.<\/p>\n

Note that closing your company itself does not eliminate any ROBS requirements, such as filing annual forms with the IRS. You\u2019ll still be legally obligated to comply with ROBS requirements until you exit ROBS appropriately, even if the business has closed its doors. The IRS will fine you until you exit.<\/p>\n

Examples of Exiting the ROBS Structure<\/p>\n

Let\u2019s look at two hypothetical examples of a business exiting the ROBS structure with two different examples: one, a successful buy back scenario, and the second an insolvency termination. <\/strong><\/p>\n

Example: <\/strong>Sunshine Baking Co. utilized a Rollovers for Business Startups (ROBS) plan to finance its startup operations, drawing $500,000 from the founder, John\u2019s, 401(k) plan.<\/p>\n

Example 1: Successful Buy Back<\/strong><\/p>\n

After five years of steady growth, John decides he\u2019s ready to exit and sell his company. Thanks to sound business decisions and market demand, Sunshine Baking Co. is now valued at $1.5 million. <\/strong>With a buyback strategy, John can purchase the shares back from the 401(k) at their current fair market value, providing a substantial return on the initial investment. Here, the value proposition is clear: the ROBS plan facilitated not just the initial startup but also the impressive growth, resulting in a threefold increase in the business\u2019s value.<\/p>\n

Price:<\/strong> The current value of the company ($1.5 million) is valued greater than the purchase price.<\/p>\n

Value:<\/strong> 3x business valuation or $1MM gained in business value.<\/p>\n

Example 2: Insolvency Termination<\/strong><\/p>\n

In an alternate universe, Sunshine Baking Co. faced insurmountable challenges, resulting in declining sales and mounting debts. <\/strong>After struggling for five years, the company\u2019s value has plummeted to just $150,000. In this situation, if John decides to terminate the ROBS arrangement due to insolvency, the 401(k) would be left with assets significantly reduced in value.<\/p>\n

Price:<\/strong> $150,000 (the diminished value of the company due to insolvency)<\/p>\n

Value:<\/strong> A significant loss of the initial investment.<\/p>\n

The comparison illustrates the varying outcomes of a ROBS Exiting Strategy and underscores the importance of due diligence, market research, and robust business practices when leveraging retirement funds for business financing.<\/strong><\/p>\n

Trouble in business paradise? You\u2019re not alone. Discover the 7 Common Small Business Problems and Their Solutions. <\/strong><\/p>\n

\"Person<\/p>\n

Both the buyback and insolvency termination processes within the ROBS structure share the same primary six steps.<\/strong> This congruence simplifies the transition for business owners, regardless of which exit path they choose.<\/p>\n

Whether you\u2019re repurchasing stock or facing the unfortunate event of insolvency, adhering to these steps ensures that you\u2019ll meet all regulatory requirements, avoid potential tax pitfalls, and safeguard your retirement assets. So, lets dive into the general six steps you\u2019ll want to follow for a smooth ROBS exiting strategy: <\/strong><\/p>\n

1. Call the Guidant Plan Administration Team<\/strong><\/p>\n

Because both buyback terminations and insolvency terminations are complex, contacting your Guidant ROBS Plan Administration Team is a necessary first step. <\/strong>Discuss your specific situation and reasons for wanting to exit ROBS. The Plan Administration Team will provide you with written instructions on how to proceed and actionable next steps.<\/p>\n

2. Determine the Value of Your Company\u2019s Stock<\/strong><\/p>\n

The Plan Administration Team will give you specific instructions for valuing your company stock. <\/strong>Valuing the stock is a necessary first step before you can actually buy it back, as it determines the price.<\/p>\n

If you\u2019re closing the company\u2019s doors, it\u2019s likely that you\u2019re insolvent or close to it. Insolvency generally means that the share price has fallen to zero.<\/strong> You\u2019ll need to submit financial reports (balance sheets, cash flow statements and income statements) that show the degree of insolvency. Once that\u2019s determined, any company 401(k) plan assets are distributed to those who participated in it. After the distribution, the 401(k) dissolves. You will need to follow all the steps below to exit ROBS.<\/strong><\/p>\n

3. Complete the Buyback and Plan Termination Requirements<\/strong>\"Happy<\/p>\n

Your Plan Administration Team will give you specific steps that need to take place to complete a buyback or an insolvency termination and to actually terminate the company 401(k) plan.<\/strong> Since these steps vary greatly, it\u2019s important to meet Plan Administration Team to review these details. Generally, the requirements include reviewing the plan for compliance, updating the stock ledger, and fulfill any additional requirements depending on your company\u2019s specific circumstances.<\/p>\n

4. Finalize the Stock Buyback<\/strong><\/p>\n

Once the stock is valued or the business is sold, you can move forward with repurchasing the stock from the 401(k) plan established initially with ROBS.<\/strong> You\u2019ll need to create a 401(k) bank account unless the company is insolvent or an in-kind distribution is completed (in which case funds do not move). The funds are moved from the corporate operating account into the newly created 401(k) bank account \u2014 and can eventually move into an IRA if you wish.<\/p>\n

5. Complete Required Year-End Documentation\u00a0<\/strong><\/p>\n

Once the stock buyback is complete and the Plan Administration Team has reviewed the paperwork, you\u2019ll need to complete all the required year-end documentation.<\/strong> You\u2019ll receive a detailed list of the requirements to be completed and returned to the Plan Administration Team. This documentation may include appraisal, updated stock ledger, account statements, employee details, and financial statements. <\/strong><\/p>\n

6. Close the Company 401(k) and File Your Final IRS Form 5500<\/strong>\"Piggy<\/p>\n

The company 401(k) must be officially and legally closed. In this process, you will need to work closely with your Plan Administrator to help you understand the details.<\/p>\n

In addition,\u00a0<\/strong>IRS Form 5500<\/strong>, the Annual Return\/Report of the Employee Benefit Plan, must be filed annually by either the employer or plan administrator of a benefit plan covered by the Employee Retirement Income Security Act of 1974 (ERISA).<\/strong> It provides information on the plan qualification, investments, finances, and operations. You must file a Form 5500 for the last year to complete your exit strategy.<\/p>\n

Again, even if you close the business and don\u2019t have a single employee or dollar of operating income, the IRS will view you as having an active company 401(k) plan until they receive the final Form 5500.<\/p>\n

Once you complete this final step, congratulations! You\u2019ve completed your ROBS exit plan. <\/strong><\/p>\n

Learn more about how to exit ROBS the right way in our <\/strong>Exiting ROBS Structure and Overview Complete Guide<\/strong>. <\/strong><\/p>\n

\"Man<\/p>\n

Now you know how to exit your ROBS plan in six steps. <\/strong>As the #1 ROBS provider in America, Guidant Financial\u2019s team of experts knows the ins and outs of 401(k) business financing\u00a0\u2014\u00a0so whether you\u2019re looking to start or exit your ROBS plan, rest assured we\u2019ll get you there.<\/p>\n

Let our decades of experience and professionals help. <\/strong>Whether you\u2019re looking for a partner in business financing or dissolving your ROBS plan, our team can help you and your business meet its goals.<\/p>\n

Call us today at 425-289-3200 for a free, no-pressure business consultation to get started<\/strong> \u2014\u00a0or pre-qualify in minutes for business financing now! <\/strong><\/p>\n

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\"Stephen<\/div>\n
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\u201cI owe a sense of gratitude to Guidant for helping me get here. It was a turning point for us moving forward<\/strong>.\u201d<\/p>\n

\u2014 Stephen Such, Falling Sky Brewing<\/p>\n<\/div>\n<\/div>\n

Read the stories of REAL small business owners who work with Guidant. <\/strong>\"Need<\/div>\n","protected":false},"excerpt":{"rendered":"

Rollovers for\u00a0Business\u00a0Startups (ROBS) is a funding method that provides small business owners with flexible and debt-free financing. ROBS utilizes your own retirement funds, such as those in a 401(k), Individual Retirement Accounts (IRAs), or other\u00a0qualified retirement plans. But what\u2019s the best exiting ROBS strategy? Initiating ROBS funding\u00a0requires a very specific set of steps. Briefly, you […]<\/p>\n","protected":false},"author":1,"featured_media":69944,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"_links":{"self":[{"href":"https:\/\/chancespin-org.staticserve.dev\/wp-json\/wp\/v2\/posts\/69943"}],"collection":[{"href":"https:\/\/chancespin-org.staticserve.dev\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/chancespin-org.staticserve.dev\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/chancespin-org.staticserve.dev\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/chancespin-org.staticserve.dev\/wp-json\/wp\/v2\/comments?post=69943"}],"version-history":[{"count":1,"href":"https:\/\/chancespin-org.staticserve.dev\/wp-json\/wp\/v2\/posts\/69943\/revisions"}],"predecessor-version":[{"id":69945,"href":"https:\/\/chancespin-org.staticserve.dev\/wp-json\/wp\/v2\/posts\/69943\/revisions\/69945"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/chancespin-org.staticserve.dev\/wp-json\/wp\/v2\/media\/69944"}],"wp:attachment":[{"href":"https:\/\/chancespin-org.staticserve.dev\/wp-json\/wp\/v2\/media?parent=69943"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/chancespin-org.staticserve.dev\/wp-json\/wp\/v2\/categories?post=69943"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/chancespin-org.staticserve.dev\/wp-json\/wp\/v2\/tags?post=69943"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}