401(k) Rollover for Business Startups (ROBS): A Complete Guide
Use retirement funds to buy a franchise without early-withdrawal penalty. Powerful but high-risk — here's how to evaluate it.
ROBS — Rollover for Business Startups — lets a buyer use qualified retirement funds to capitalize a new business without triggering early withdrawal penalties or taxes. It's powerful, but it puts retirement savings at business risk.
How ROBS Works
You form a C-corporation, the corporation sponsors a new 401(k) plan, you roll your existing retirement funds into the new plan, the new plan invests in the corporation's stock, and the corporation uses the proceeds to fund your franchise.
Who It's For
ROBS works best for buyers with $75,000+ in qualified retirement funds who want to avoid debt or use ROBS as the equity injection on an SBA loan. Buyers under 59½ benefit most because they avoid the 10% early withdrawal penalty.
The Risk
If the business fails, the retirement funds are lost. Unlike an SBA loan, there is no debt to discharge — the capital is simply gone. Many financial planners advise against ROBS for buyers nearing retirement age.
Setup and Compliance
ROBS requires a specialty provider to handle setup, ongoing 401(k) administration, and annual filings. Setup costs $4,000–$5,000. Annual administration runs $1,500–$2,500. Skipping compliance can trigger disqualification of the plan.
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