Change your life by investing in your future
Mark Schottland’s 401(k) took a beating in the market crash of 2008, and its value plunged 35 percent, to $65,000. But rather than hide his money under his mattress, the Nashville resident decided to invest in himself.
Schottland used what was left of his nest egg to buy the Nashville franchise for Dogtopia, a dog daycare and boarding business that had 27 locations nationwide at the end of last year.
To do that, he took advantage of a little-known transaction called rollover-as-business-startup (ROBS). That allowed Schottland, then in his mid-30s, to sidestep the typical income taxes and 10 percent penalty that hit those under the age of 59-1/2 who withdraw money from tax-deferred retirement plans.
The ROBS loophole is complex: It allows would-be entrepreneurs to roll over their existing 401(k)or Individual Retirement Account to a plan set up within a new company, and then has that 401(k) purchase stock in it.
“I decided I’d rather invest my retirement money in my own abilities than in the stock market,” Schottland said. “There’s a lot of risk in investing in your own business, but at least you have control over your own destiny. In the stock market, you just don’t.”
One company that helps entrepreneurs execute ROBS, says more than 80 percent of its clients are still in business after five years. They attribute this to the fact that ROBS-generated equity reduces the amount of debt required to launch a businesses.
Schottland began his career in financial services, working for 10 years as a money market manager and mutual fund wholesaler. “I got tired of traveling and sitting on an airplane, so I started looking for a mom and pop industry that needed consolidation.”
He got the idea of going into the dog business when he saw how much it cost to board his own two Siberian Huskies.
“There are a lot of traps for the unwary,” he says. “All other things being equal, you wouldn’t put such a large proportion of your wealth into one investment. But this approach has advantages for someone who couldn’t otherwise start a business.”
Schottland used several funding sources to launch his business. The ROBS provided $65,000 of launch funds; $140,000 came from a Small Business Administration-backed loan, and the remainder came from his taxable accounts.
Business is good – Schottland says he’s been operating at a profit since late 2009, and today is running at 80 percent occupancy. Now 39, he has been able to rebuild his 401(k) holdings. So long as business doesn’t go to the dogs, his ROBS should pay off handsomely.
Find out how you can use your 401K to start a business. Give us a call at (760) 230-2827.
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