ROBS Funding Checklist: From Rollover to Compliance

A ROBS funding process has five visible stages: confirm eligibility, form the C-Corp and its 401(k) plan, complete the direct rollover, document the plan's stock purchase, and maintain the plan and corporation every year afterward. Use this checklist to identify what must be complete before business funds are available and what continues after funding.

Stage 1: Confirm eligibility

Before you start the process, confirm your retirement funds are compatible.

✅ Commonly Eligible Plans

• Traditional IRA
• 401(k) (From a former employer)
• 403(b) (Non-profit/Public school plans)
• TSP (Thrift Savings Plan)
• SEP and SIMPLE IRAs
• Roth 401(k)s

❌ Commonly Ineligible Plans

• Roth IRA: Incompatible with the ROBS structure
• Current Employer 401(k): Most plans prohibit "in-service" rollovers while you are still employed there
• Inherited IRA: Cannot be rolled over

Stage 2: Form the C-Corp and 401(k) plan

ROBS requires a C-Corporation. LLCs and S-Corps are not eligible because the 401(k) plan can only purchase qualifying employer securities, which means C-Corp stock.

• Step 1: Incorporate a C-Corporation. This includes obtaining an EIN from the IRS and appointing a registered agent in your state of incorporation.
• Step 2: Adopt a 401(k) plan. Your new C-Corp sponsors a 401(k) plan designed to allow rollovers and the purchase of employer stock. The plan requires its own trust and a separate EIN.

Stage 3: Complete the direct rollover

The sending custodian moves eligible retirement funds directly into the new 401(k) plan. The rollover must arrive before the plan can complete its stock purchase.

• Step 3: Trustee-to-trustee transfer. The custodian of your existing retirement account transfers or rolls over funds directly into the new 401(k) plan.

Stage 4: Complete the stock purchase and fund the company

This is the capitalization event where retirement funds become available for business use.

• Step 4: Stock purchase. The 401(k) plan purchases stock in the C-Corp. The plan wires cash to the C-Corp's operating account, and the C-Corp issues shares to the plan.
• Step 5: Deployment. The C-Corp now holds operating capital to use for legitimate business expenses and investments (equipment, inventory, working capital, payroll).

Stage 5: Maintain annual administration

ROBS requires ongoing compliance for as long as the 401(k) plan holds C-Corp stock.

1. Form 5500: File this annual return by July 31 (for calendar-year plans) to report plan assets.
2. 401(k) plan testing and document maintenance: Perform annual required compliance testing. Adopt plan amendments/restatements to keep the document current.
3. 401(k) operational compliance: Operate the plan based on plan terms, including bringing in eligible employees and making employer contributions promptly.
4. Valuation records: Maintain records supporting the value of company stock held by the 401(k).
5. ERISA fidelity bond: Renew the plan's fidelity bond.
6. Entity maintenance: Keep registered agent services, state annual reports, and other corporate filings up to date.
7. Active employment: Remain a bona fide W-2 employee of the C-Corp, not a passive investor.
8. Arm's length transactions / no prohibited transactions: Ensure all dealings between you, the plan, and the C-Corp are at arm's length. Avoid prohibited transactions.

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.