401K less than $50,000
I am negotiating with a builder to construct a vacation rental home on property I own in Hawaii. I have $47,000 in a taxable 401k that I was going to use to help with the construction costs. I read your piece about ROBS. If I withdraw it outright I will have to pay taxes of approx. 25%. I guess this is a cart before the horse type of question. IF, I don’t own a vacation rental yet or have an LLC because I don’t have a business, yet, how can I get money transferred prior to forming a LLC or even having a legitimate business to apply it to? Can you make any sense out of my word salad? Thank you in advance
Thanks for finding us in the forums! In order to setup a ROBS you must first create a C Corporation, not an LLC. You’ll create this right before you start your rollover, and you’ll set up a 401k account with that new business structure. The money from your personal retirement account is going to flow into that new business 401k account, and that account will buy shares of your new business (even though you have no assets in that business). The business then receives the money and can use it to purchase another business’s assets.
If you’re planning on using a ROBS, you should first speak with an experienced ROBS professional to talk through your situation and make sure it’s the right option for you. Then I would make sure you have a negotiated deal in writing to buy a business before I initiate the ROBS, so that you don’t waste the money it costs to get it setup and then have your 401k money sitting in an empty shell business. Good luck!