ROBS Explained: How to Fund Your Business with Retirement Savings
If you have retirement savings sitting in a 401(k) or IRA, you might be able to use that money to fund your business -- tax-free and penalty-free -- through a strategy called ROBS (Rollovers as Business Startups).
What is ROBS?
ROBS allows you to roll over your retirement funds into a new 401(k) plan sponsored by your C Corporation, which then uses those funds to purchase stock in your company.
Key benefit: Access your retirement capital without the typical 10% early withdrawal penalty or income taxes.
How ROBS Works
- Form a C Corporation - Must be a C Corp (not LLC or S Corp)
- Create a 401(k) plan - Your new company sponsors a retirement plan
- Roll over funds - Transfer money from existing retirement accounts
- Purchase company stock - The 401(k) buys shares in your C Corp
- Use the capital - Your business now has operating capital
Is ROBS Right for You?
Good fit if you:
- Have $50K+ in retirement savings
- Need immediate business capital
- Don't want debt or to give up equity
- Are committed to running this business full-time
Not ideal if:
- You have limited retirement savings
- You're not ready to go full-time
- Your business is high-risk/speculative
Compliance is Critical
ROBS arrangements are legal but heavily scrutinized by the IRS. You must:
- Maintain proper 401(k) documentation
- File annual 5500 forms
- Ensure arms-length transactions
- Pay yourself reasonable compensation