ROBS Explained: How to Fund Your Business with Retirement Savings
If you have retirement savings sitting in a 401(k), IRA, or other eligible retirement account, you might be able to use that money to fund your business through a strategy called ROBS (Rollovers as Business Startups).
What is ROBS?
ROBS is a way for you to move eligible retirement funds into a new 401(k) plan sponsored by a C-Corporation you form. The 401(k) plan then uses those funds to buy stock in the C-Corp, providing capital for your new business without taking a taxable distribution if structured and operated properly.
Key benefit: You access your capital for your business without taking on lenders, investors, or dilution.
How ROBS Works
- Form a C-Corporation: ROBS requires a C-Corp (LLCs and S-Corps are not eligible)
- Create a 401(k) plan: Your new C-Corp sponsors a 401(k) plan
- Roll over your existing funds: Transfer money from existing eligible retirement accounts into the new 401(k) plan
- 401(k) purchases company stock: The 401(k) buys shares in your C-Corp
- Use the capital: Your C-Corp now has operating capital
Is ROBS Right for You?
Potential fit if you:
- Have $50,000 or more in rollover-eligible retirement savings
- Want to start or acquire a business using your own retirement funds
- Will actively work in the business as an employee
Not ideal if you:
- Have less than $50,000 in retirement savings
- Seek a business that generates passive income
- Are uncomfortable putting retirement savings at risk
What Qualifies
ROBS can fund a wide range of businesses, including restaurants, franchises, tech companies, service firms, and acquisitions of existing businesses, as long as the business is active, for-profit, and federally legal. It cannot be used for purely passive investment vehicles.
Compliance is Critical
ROBS arrangements rely on established tax and retirement-plan law under the Internal Revenue Code and ERISA. They require ongoing compliance after setup. Among other things, you must:
- Maintain proper 401(k) plan documentation
- File annual Form 5500
- Operate the plan for the benefit of all eligible employees
- Complete required plan testing
- Secure an ERISA fidelity bond
- Maintain accurate cap table and valuation records
- Avoid prohibited transactions
- Keep your C-Corp in good standing
- Pay yourself reasonable W-2 compensation
The Bottom Line
If you have meaningful retirement savings, ROBS can be a powerful funding path for you to capitalize a business using your retirement funds. Make sure the structure is set up correctly and maintained properly from the start.
This information is presented for educational purposes only and should not be construed as tax, legal, or investment advice. These rules are highly fact-specific. Tax rules and IRS guidance may change, and tax treatment depends on individual circumstances. Whenever making an investment decision, please consult with independent legal, tax, and accounting professionals.