I want to use money from my 401k to purchase a business ($100,000). \
if the profit from the business puts back the $100,000 will i still be subject to a double taxation on the money made over the $100,000?
I assume you’re wanting to use a ROBS to buy a business for $100K. Using a ROBS will require you to start a C Corporation in order to move the funds because the business will be selling shares of the company directly to a retirement account and not to an individual or business. The C Corp is the only business structure that allows such a distribution of shares.
The C Corp is not a pass through entity because the business itself will be taxed on profits. The double taxation comes into play because not only will the business be taxed on profits but you’ll also be taxed on any money you receive as a salary from that business. In a pass through entity you could just take distributions instead of a straight salary from the profits of the business, and you wouldn’t have the extra taxation. Regardless of what you do with the business, you’ll be taxed on the profits in your new C Corp.
I recommend discussing this with your ROBS Provider, or with a CPA familiar with these transactions. Buying the shares back from the 401k plan that owns shares of your business may not qualify as a business expense, meaning you could be taxed not that $100K as well as anything you make above that. You’ll certainly be charged for the $100K above and beyond any money you spend though, which I believe answers your main question here. Please let us know if you have more questions about this.
Disclaimer: We spend hours researching and writing our articles and strive to provide accurate, up-to-date content. However, our research is meant to aid your own, and we are not acting as licensed professionals. We recommend that you consult with your own lawyer, accountant, or other licensed professional for relevant business decisions. Click here to see our full disclaimer.
Product or company names, logos, and trademarks referred to on this site belong to their respective owners.