Anyone have experience using 401k to fund their LLC?

[Will Schryver]

Need any feedback or advice from someone who used their 401k to invest in their own company. I know I can get a loan (50% or up to $50k) but ideally I would like to have access to the entire amount without triggering taxes and penalties. Do I need a separate custodian to administer the new retirement plan and direct the new plan to invest all of the proceeds in my LLC?

[Mark Nolan]

@Will Schryver

If your business will provide goods or services, then the ROBS 401k may be an option; however specific rules apply--such as the following:

• The business you are looking to fund must be an operating business (e.g., a retail or on-line store providing goods and/or services) not a passive-investing business (e.g., a company setup for day trading stocks).

• Only rollover funds from non-Roth fund sources qualify for funding the C-corporation.

• Only a C-corporation may be used in the ROBS transaction; therefore, other entity types such as an S-corporation, LLC, partnership and sole proprietorship may not be used in the ROBS arrangement.

• The purchase of employer stock must be for adequate consideration (i.e, the 401k profit sharing plan must purchase the employer stock at fair market value).

• No commission may be charged for the 401k profit sharing plan’s purchase of the stock.

• An annual valuation must be performed of the assets of the plan including the employer stock.

• If the business has existing employees, it is likely that those employees will need to be provided the option to rollover their retirement funds and invest in the business if they wish to do so.