401(k) rollover for business startup

[Longbone]

Has anyone here ever financed a dental practice using a 401(k) rollover as business startup (ROBS)?
http://en.wikipedia.org/wiki/Rollovers_as_Business_Start-Ups

My wife (also a dentist) and I have been fortunate to pay off our student loans in 5 years while also accumulating several hundreds of thousands into retirement accounts and we are now planning for a possible relocation in a fews years. By then, we will be 100% debt free (including mortgage free) and we should have well over $1M in retirement accounts so we are considering using some of those funds to completely finance a practice purchase or startup. The practice will have to be a C-corporation, which many dentists avoid due to double taxation at retirement when the practice is sold, BUT if my 401(k) owns the practice I think the double taxation is avoided because I will be financing the practice with money that I never paid taxes on in the first place.

If anyone has experience with such a transaction your input would be greatly appreciated and all other thoughts and comments/opinions from others is also greatly appreciated!

---

Members don't see this ad.

 

[JVanHorn]

What happens if you decide to sell the practice at any point in time?

What is worth more, using tax free dollars to start the practice or using debt that is a low interest rate?

In other words, are the tax free dollars that are accumulating in value that you pull out of investments going to increase at a lower rate than the interest rate from a bank loan?

I'm a CPA. I help only dentists. I've never gone through one of these with a client. Just some food for thought.

 

[Longbone]

What happens if you decide to sell the practice at any point in time?

What is worth more, using tax free dollars to start the practice or using debt that is a low interest rate?

In other words, are the tax free dollars that are accumulating in value that you pull out of investments going to increase at a lower rate than the interest rate from a bank loan?

I'm a CPA. I help only dentists. I've never gone through one of these with a client. Just some food for thought.

Good questions. If and when I decided to sell the practice, the proceeds from the sale would go into the 401(k) plan rather than to myself directly.

In terms of what would be worth more, I think that would be difficult to accurately predict but I do understand the loss of accumulating value in stocks within the retirement accounts. One way to look at it, I would be diversifying my investments by investing a portion of my 401(k) into myself and my abilities to succeed as a dentist rather than relying completely on the stock market for value appreciation. Also, rather than making monthly payments on a bank loan used to finance the practice, I would be able to save more cash and accumulate more wealth not tied to my retirement accounts. So in terms of investment value, maybe the practice itself would not gain an equal value compared to alternative 401(k) investments but it would allow for financial gain not directly tied to the dental practice investment as my individual debt level will be zero and my disposable income and income available to save outside of the retirement accounts would be increased.

I understand that not many and maybe not one dentist has every financed a practice with this method but also keep in mind that not many dentists have ever had the opportunity to do so and I would guess that my situation is probably pretty unique. I like to prospect of being completely debt free at 35-36 years old with a practice completely paid for, but I do understand that more traditional practice financing might be the better option.

For dentists who have financed their dental practices through traditional methods and then have paid them off completely, I wonder how much of a relief it is to never again have to make that monthly loan payment?

 

[JVanHorn]

Good questions. If and when I decided to sell the practice, the proceeds from the sale would go into the 401(k) plan rather than to myself directly.

For dentists who have financed their dental practices through traditional methods and then have paid them off completely, I wonder how much of a relief it is to never again have to make that monthly loan payment?

When it goes into the 401k, does it go into the plan or only your account?

Do the other employees who have participated in the plan get a percentage of that?

What are the annual and monthly costs of keeping up with the creative entity setup from a legal, tax, accounting, and HR perspective?

I'm not a dentist but I speak with plenty that have accomplished the loan pay-offs, it's a great feeling but most decide to borrow again for other ventures.

Being debt-free is a fantastic mentality, however it's not as big of a burden as you'd think if the practice is running well and cash-flowing because that is the payment that allowed the business to start.

Debt in our personal lives drags us down. Home mortgages, credit card debts, vehicle debt, boats, etc.

Business debt is a different mentality. If you own your own business, you are tied down by the sheer ownership, not just the loan. It's just a piece of the pie.

Disclaimer is that this is a personal opinion from a business owner and it could be different for you. But I have a feeling once you get into the ownership you'd feel the same way.