As we become smarter and wiser investors, we learn more about tax strategies that will help us reduce our tax bill.
I heard that taxes can be a big expense. So, why not try to reduce them as much as possible legally?
According to our poll, investors want to learn more about taxes. Therefore, I will explain some strategies for this year.
Always take these concepts and ideas, and then reach out to legal to set up and approve your transactions if they may fit your situation.
Even if one strategy doesn’t fit you, please share our newsletter with others, as it may impact someone.
As I mentioned, I attended three events over two weeks recently.
At each of these, I heard about the ROBS.
What is ROBS and How Does It Work?
ROBS, short for rollover business startup, is an IRS and ERISA-approved structure.
It allows you to invest funds from a retirement account into a business or franchise.
This plan allows you to buy a business (C-Corp) only, be the operator, and make payroll.
You can’t do this with other retirement plans.
The ROBS lets you take funds from a traditional 401k or IRA plan and set up a new 401k plan specifically for the new ROBS.
Then the new plan will purchase stock in a new or existing business, it must be a C-corp.
You then roll over funds to buy the stock in your C-Corp, effectively funding the business.
The ROBS will own 98 or 99% of the C-Corp, and you will own the other portion.
Some rules require keeping ownership under 100% to prevent prohibited transactions.
As with any company setup, it is essential to use professionals who will set it up for you.
Why is this so big of a deal? You can pay 21% once, then take those dividends down into a ROTH 401k and invest those tax-free in perpetuity.
Most of us will hit 59.5 before we know it or have already passed it, and there is nothing better than making tax-free profits every year in our 401k plans.
Most people are paying 30-45% on earned income, depending on the state you are in. So you already have instant savings.
The Benefits / Highlights Unleashed
This structure is used to operate an active (ordinary income) business and not passive activities (those should be in other accounts).
You can start it with money from your IRA or existing 401k accounts.
You can start a new business or buy an existing one. This business could be one that you already own as it is bought at fair market value.
You can take a reasonable salary from the business.
The profits only get taxed at the corporate tax rate which in 2024 is 21%. Some state taxes may apply.
Then, the 401k (it can be a Roth) can take those dividends from the ROBS and invest those tax-free annually.
Now, imagine your new business needs more capital. You can borrow from lenders and can personally guarantee the debt—something you can’t do in other accounts.
You can also lend money to the ROBS from yourself at fair market interest rates.
You can take advantage of high contribution limits to the 401k plan. This means you can build a meaningful 401k every year between contributions and dividends.
Bonus: I know someone who sets these structures up for clients that use an Act 60 tax decree from Puerto Rico.
They can get the tax rate as low as 4%.
For this to work, you need staff there on the island and yourself for some time as the services and work must be performed there.
Without going into details here, if you are ready to set this up, then email me.
Where Do You Start?
Many custodians out there provide these services when you google them.
It is crucial to choose the right one from the start.
You will want one that allows self-directed accounts; this is very important for self-directing 401k funds.
Also, because there is compliance, you will want a custodian of sorts to keep you in compliance.
Adam Bergman runs IRA Financial Group and offers these plans at a reasonable price.
He breaks down the ROBS quickly here in this video.
Conclusion: Your Business, Your Retirement, Your Future
A ROBS can be a game changer for entrepreneurs looking to save on taxes, run their businesses, and build their retirement account balance.
Since this hits on all aspects most investors are looking for, it's worth the time to look into if you have an active business or are looking to start one or buy one.
Remember, there is always compliance and annual reports to avoid IRS scrutiny.
