ROBS 401(k) Explained: How Business Funding Works
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).
ROBS in one sentence: Eligible retirement funds move into a new 401(k) plan, the plan buys stock in your new C-Corporation, and the company uses the stock proceeds to start or acquire an operating business. When structured and operated properly, the rollover remains tax-deferred; the retirement capital is invested in the business and can be lost if the business fails.
| Question | Short answer |
|---|---|
| How does it work? | Form a C-Corp, establish its 401(k) plan, complete a direct rollover, and have the plan buy company stock. |
| What are the core requirements? | Eligible retirement funds, an active operating business, a C-Corp, and a bona fide employee role for the founder. |
| What does it cost? | Providers charge for setup and ongoing administration. See the Nexus pricing page for the published price and included scope. |
| How long does it take? | Most cases take roughly two to five weeks, with the sending custodian usually controlling the longest step. |
| What is the main risk? | Retirement savings become concentrated in one private business, alongside ongoing plan and corporate obligations. |
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
Here's the summary:
- You form a C-Corporation
- The C-Corp sponsors a new 401(k) plan
- You transfer existing eligible retirement funds into the new 401(k) plan
- The 401(k) plan purchases shares in the C-Corp
- The C-Corp has operating capital. The 401(k) plan holds the equity
Now the detail:
1. Form a C-Corporation
ROBS requires a C-Corp. LLCs and S-Corps aren't eligible. This is a legal constraint, not a provider preference: the exemption applies to qualifying employer securities, and in practice only C-Corp stock qualifies.
Formation means articles of incorporation, bylaws, an EIN, a registered agent, and a board that authorizes the stock issuance. Founders buying an existing business typically form the C-Corp as the acquiring entity. The C-Corp structure can unlock meaningful tax planning, including QSBS, for those who qualify. Covered in The Case for C-Corps.
2. The C-Corp sponsors a 401(k) plan
The C-Corp adopts a new 401(k) plan with its own plan documents, trust, and trust EIN. This is a real retirement plan. It must cover eligible employees, operate for the benefit of participants, and run under ERISA standards.
3. Roll over eligible retirement funds
You direct a rollover from existing eligible retirement accounts into the new 401(k) plan. When done properly, because funds move directly between qualified accounts, nothing is distributed, nothing is taxed, and nothing is penalized.
Eligible sources generally include 401(k) balances from former employers, traditional IRAs, 403(b) and governmental 457(b) plans, the Thrift Savings Plan, SEP IRAs, and SIMPLE IRAs after their two-year holding period.
4. The 401(k) plan purchases stock
The 401(k) plan uses the rolled-over funds to buy newly issued shares of the C-Corp for adequate consideration. This is the legal heart of the transaction. The 401(k) plan trust becomes a shareholder, the C-Corp receives the cash, and the issuance is documented: board resolutions, a stock purchase agreement, a cap table.
The price has to be right. For a new corporation with no operating history, value is often the cash going in. When used to acquire an existing operating company, an independent valuation is how the plan demonstrates it paid fair market value.
5. The C-Corp deploys the capital
The C-Corp now spends the money to either acquire a business, or as operating capital: signing a lease, buying equipment, hiring, funding inventory.
The money belongs to the C-Corp. It does not belong to you personally, and that distinction is permanent. Using corporate funds for personal expenses is not allowed.
ROBS 401(k) requirements and fit
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
The business must be a real operating company: active, for-profit, legal at the federal level. Restaurants, franchises, trades, manufacturing, software, acquisitions of existing companies.
What does it cost?
ROBS has two cost categories: initial setup and ongoing administration. Nexus charges $5,000 for setup and $500 per quarter for administration. See the pricing page for the complete included scope and provider comparison.
How long does it take?
Typically weeks. The C-Corp and the 401(k) plan can be established in days. The variable is the rollover itself, which depends on how quickly the current custodian releases funds; most complete a direct rollover in one to two weeks.
Nexus typically takes a founder from application to funded in 2 to 3 weeks. Industry-wide, 3 to 5 weeks is common.
What are the ongoing requirements?
For as long as the plan owns stock, the obligations recur.
The 401(k) plan must file Form 5500. The plan must complete required testing. The plan must hold an ERISA fidelity bond. The corporation must stay in good standing: registered agent, annual reports, franchise taxes. The cap table and valuation records must stay current. Eligible employees must be offered participation as you hire. Compensation must stay reasonable, and prohibited transactions must stay avoided.
All of it has to happen, and someone has to own it. That is the standard to hold any provider to, including us.
Risks worth knowing
Concentration. Retirement savings move from diversified funds into one private company. This is the fundamental investment risk.
Compliance failure. The IRS has discovered ROBS structures that stopped being administered: no Form 5500, no valuation, prohibited transactions. The consequence of a disqualified plan is severe, since the original rollover can become a taxable distribution with penalties.
Prohibited transactions. The 401(k) plan and the people who run the company are disqualified persons with respect to each other, and the law strictly limits dealings between them. Paying personal expenses from corporate funds. Lending company money to yourself. Leasing your own property to the company. The map is in our guide to prohibited transactions.
Business failure. Worth separating from everything above. If the business fails, the plan's stock loses its value. The failure is not, by itself, a tax event or a violation. The structure unwinds in order: dissolve the C-Corp properly, file the plan's final Form 5500, roll remaining plan assets out to an IRA.
Common questions
Is ROBS legal?
Yes. ROBS arrangements have been in use since the 1970s and use a statutory exemption that allows a retirement plan to purchase qualifying employer securities. A ROBS transaction is that exemption, exercised deliberately and in compliance with the relevant provisions of ERISA and the Internal Revenue Code.
What is the minimum amount of retirement savings for ROBS?
There is no legal minimum. As a practical matter, $50,000 or more in eligible funds is where the structure's fixed costs can start to make sense.
Can I use a Roth IRA for ROBS?
No. Roth IRA funds cannot be rolled into a 401(k) plan, so they cannot fund a ROBS transaction.
Can I use my current employer's 401(k)?
Usually not while you still work there, since most plans do not permit in-service rollovers before age 59 and a half. Former employers' plans and traditional IRAs are the typical sources.
Do I have to pay myself a salary?
Yes, you must pay yourself a reasonable W-2 salary, for work performed, once the business is operating and can support it.
How long does a ROBS rollover take?
End to end, Nexus typically takes founders from application to funded in 2 to 3 weeks. Industry standard is 3 to 5 weeks.
Can ROBS be used with an SBA loan?
Yes. ROBS may supply equity alongside an SBA loan, subject to the lender's requirements. See the ROBS and SBA acquisition guide.
Can ROBS fund a franchise purchase?
Yes. ROBS can be used to capitalize an eligible franchise operating through the required C-Corporation structure.
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.
If your goal is to buy a company rather than start one, compare the full capital stack in the founder funding guide. When you are ready to test the fit, complete the Nexus prequalification before moving funds or making a provider commitment.
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.