For those who use ROBS for debt-free small business financing, there may come a time to exit the funding arrangement. Review the steps for unwinding 401(k) business financing here. 


There are several great reasons to get started with the Rollovers for Business Start-ups (ROBS) arrangement for small business funding — fast funding, debt-free financing and increased buying power to name a few. And as your business grows, there are also many reasons you may want to unwind the ROBS structure, so that your 401(k) plan no longer owns stock in your business.

Whether you’re selling your high-performing business for a profit, closing doors to move on to your next adventure or are keeping operations growing, but prefer to see your funds back in your retirement account, you can smoothly exit the ROBS arrangement with the help of your plan administration team.

At a high level, unwinding the 401(k) business financing structure involves repurchasing the stock your 401(k) plan originally invested in your company. This also typically involves dissolving the retirement plan, though some business owners do choose to keep it intact after completing the stock buyback.

It’s important to remember that no matter what your unique situation is, in the eyes of the IRS, following the proper steps to end your ROBS arrangement is just important as properly setting it up — even if you’re closing your doors due to insolvency.

If you’re considering closing up shop, selling your business or buying back your stock, it’s extremely important to reach out to your third party provider, so they can help you through the process. If your business is insolvent, it’s equally important to work with your third party provider to unwind the ROBS arrangement, but all of the steps in this article will not apply to your situation.

Here’s an overview of the steps you’ll take as well as some helpful tips to help you quickly and seamlessly unwind ROBS.


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1. Call the Guidant Plan Administration Team

The best way to get started successfully exiting the ROBS arrangement is to reach our to your account representative at Guidant. He or she will discuss your specific situation with you and provide you written instructions as well as actionable next steps to move forward.

2. Hold a Call With Your Assigned Outside Counsel

It’s almost certain, that as a result of your call with the Plan Administration team, you’ll be referred to your assigned Outside Counsel. Just as you spoke with counsel to ensure your ROBS structure was correctly setup, you’ll want to speak with them to be certain it’s properly dissolved.

3. Determine the Value of Your Company’s Stock

During your discussion with Outside Counsel, together you’ll determine the best route for valuing your company’s stock — an important first step when repurchasing the stock from the 401(k) plan. This may involve discussing whether your company is insolvent or not, potentially obtaining an appraisal or determining the value another way.

4. Complete the Stock Buyback

Once the stock has been valued or the business has been sold, you can move forward with repurchasing the stock from the 401(k) plan. Unless the company is insolvent or an in-kind distribution is completed (in which case funds do not move), a 401(k) bank account will need to be established. The funds are the moved from the corporate operating account into the 401(k) bank account and eventually into an IRA.

5. Complete the Buyback and Plan Termination Paperwork

During your call with counsel, you’ll review various documents, which need to be completed in order to properly terminate your 401(k) plan. These documents include notifications to employees, a Board Resolution to terminate the 401(k) plan, an updated stock ledger and additional documents depending on your unique situation.

6. Return Year-End Documentation to Guidant

Once the stock buyback is complete and all paperwork has been reviewed with Outside Counsel, all plan termination and year-end documentation needs to be returned to Guidant. Your account representative will give you a detailed list of which documents are required, but it will include appraisal information, a copy of your Board Resolution, the updated stock ledger, account statements showing the movement of funds as well as all year-end information such as an employee census and corporate summary.

7. File Your Final IRS Form 5500

The final, extremely important step in exiting the ROBS arrangement is filing a final IRS Form 5500. Until this step is complete, you have an active 401(k) plan in the eyes of the IRS, even if no one is participating or the business is not operating. The best action to take is to e-sign and file the form as soon as you receive notification from Guidant that it’s ready. And, that’s it! After the final Form 5500 has been successfully filed, you don’t have any additional steps to take.

It can seem like there are a lot of steps to complete when exiting the ROBS strategy, but your assigned Outside Counsel and Guidant Account Representative can help ensure your transition is a smooth one. The most important things to remember are that everyone, even if their business is insolvent, must file the proper paperwork to dissolve their 401(k) plan in the eyes of the IRS and that your complete documentation package must be returned to Guidant before the team can complete your final Form 5500.

Looking for more information on how to exit the ROBS arrangement? Check out our Complete Guide — 401(k) Business Financing: ROBS.

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