Roll With It: Funding a Startup From Your Retirement Accounts

Roll With It: Funding a Startup From Your Retirement Accounts image medium 5073536991 200x3001Roll with It

An entire industry has been developing to support the emergence of equity crowdfunding and they are anxiously waiting for the baby to be born. In April of 2012, The JOBS Act was signed into law. One of the hallmarks of this legislation is equity-based crowdfunding—a new fundraising vehicle for small businesses to generate investment capital. When Congress turned this legislation over to The Securities and Exchange Commission (SEC) to complete the regulations there was a December 31, 2012 deadline for completion.

2012 came and went and the JOBS Act regulations are yet to be seen from the SEC. Last week, Mary Jo White was nominated by President Obama to replace the former chairman who departed the SEC in December. Assuming her confirmation, it is anyone’s guess as to what her legislative priorities will be (e.g., Dodd-Frank, JOBS Act, Ponzi schemes) and what that means for executing these JOBS Act regulations.

For any entrepreneur who was hoping to use their social network to offer equity in their company in exchange for small investments, the wait could be significant—up to another year.

What is an entrepreneur to do? The existing funding options are still available: personal money, ask friends and family for money, apply for an SBA loan if you have revenue, try and win some business plan contest awards, or raise some money among wealthy angel investors through either a private placement or one of the online platforms created to enable startups and angel investors to find each other: AngelList or Gust.

There is however another avenue that you might not be aware of and may want to consider— Rollover for Business Funding, or ROBS allows you to use your retirement savings, tax deferred and penalty free to fund a startup. This funding mechanism can include a rollover 401(K), IRA, or SEP (if the SEP is open for more than 2 years) or any combination of the 3 acceptable types.

ROBS works by creating a corporation with its own retirement plan. The 401(K), IRA or SEP funds are rolled into the new entity’s retirement program. Stock is purchased in the new company using these funds. Capital is now available to buy a business, start a business, use as collateral for an SBA loan, etc. Basically, you are up and running and have cash flow to manage your business.

Talk to your accountant and/or securities attorney for professional guidance. For more information, this is a company that offers this type of alternative investment opportunity.

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