How Can I Exit My ROBS?
Posted 4.14.2021 in ROBS
While the ROBS funding solution has been successfully used by entrepreneurs to fund and expand businesses for many years, it isn’t for everyone. Remember, a ROBS business is a retirement asset. At some point, all ROBS will need to be unwound and proceeds (which are qualified funds generated from the sale or liquidation of the business) will be returned to the 401k owner’s account. Even before retirement, some ROBS owners will want to exit their ROBS for a wide variety of reasons. Using experienced ROBS advisors to unwind your ROBS, and an experienced CPA to help you determine the tax consequences of exiting, is as important as using experienced ROBS advisors to set-up your ROBS. You do not want to make unintentional errors that could lead to IRS issues down the line.
Reasons why entrepreneurs exit their ROBS can include:
- Entrepreneur is ready to retire
- The business is no longer generating the desired profitability or increase in value
- Offer from someone to purchase the business
- Lifestyle changes
- Desire to return funds to a dedicated personal retirement account and operate the business as another entity type
Steps involved in the ROBS-exiting process include:
- Discuss steps with your ROBS advisors including plan administrator, attorney & CPA
- Purchase the stock owned by your 401(k) plan based on fair market value of the shares, returning proceeds of the sale to another qualified account
- Dissolve the retirement plan (although some ROBS users choose to keep it intact)
- Ensure all paperwork is submitted to your advisors and government agencies
- File your final IRS 5500 form
- If dissolving the corporation, file a final tax return and take the necessary dissolution steps outlined by an attorney
Unwinding a ROBS requires special attention to ensure that the process is handled correctly. Leveraging your team of experienced ROBS advisors, including CPAs with ROBS experience, will help to minimize potential IRS complications.
If you have set-up a ROBS and you are looking for expert tax/accounting/payroll support for your ROBS, please contact Attaway Linville today at 803-831-0263 or 404-607-8400 to learn more about how we can help.
This is #5 in a series of blog posts about ROBS. Click below for the other entries:
#1: Why use a ROBS to fund a business or franchise purchase?
#2: What are the Pros & Cons of using a ROBS?
#3: What is the process of setting up a ROBS?
#4: What are the ongoing compliance requirements of a ROBS?