Retirement Funding (ROBS)

Are you interested in using retirement funds to buy a business?

If a meaningful share of your savings sits in a 401(k) or IRA, you may be able to use those funds to help buy a business through an arrangement known as ROBS, short for Rollovers as Business Startups. Done correctly, ROBS lets eligible retirement funds be used to acquire or capitalize a business without triggering the early-withdrawal taxes and penalties that normally apply. It is not the right tool for everyone, but for buyers with substantial retirement savings, it can be a powerful way to fund a purchase. First Choice Business Brokers (FCBB) helps buyers across the Mountain West understand whether it may fit, and connects them with vetted specialists who set these structures up.


What is ROBS?

ROBS is an arrangement the IRS recognizes that allows you to roll eligible retirement funds into a new retirement plan sponsored by the business you are buying or forming, and then have that plan invest in the business. In practical terms, your retirement savings become equity in the company you operate, rather than a distribution you pay tax and penalties on. Because ROBS uses your own funds, there is no loan and no monthly debt payment created by the rollover itself, which is part of its appeal.


How a ROBS arrangement works, generally speaking

  1. A new C corporation is formed to own and operate the business you are buying.
  2. That corporation establishes a new retirement plan, typically a 401(k).
  3. You roll eligible funds from an existing 401(k) or IRA into the new plan, without taking a taxable distribution.
  4. The new plan invests in stock of the C corporation, which provides the capital used to acquire or fund the business.
  5. The business operates, and the value of the retirement plan rises or falls with the value of the company.



Each step has specific legal and tax requirements, and the structure must be maintained correctly over time, which is why most buyers work with a specialist provider rather than attempting it alone.


Who ROBS is likely good for

ROBS tends to make the most sense for buyers who have significant retirement funds they are prepared to put at risk in a business, who want to avoid taking on debt or who want to reduce the amount they borrow, and who are comfortable taking an active role in the company. It can also be combined with other financing, such as an SBA loan, to cover a larger purchase.


Things to consider

ROBS puts retirement savings directly into a single business, so the same upside that makes it attractive also concentrates your risk. If the business struggles, the retirement funds invested are exposed. There are also ongoing compliance obligations, including maintaining the C corporation and the retirement plan and meeting IRS and Department of Labor rules. These are real responsibilities, and getting them wrong can carry tax consequences. None of this makes ROBS a bad option; it simply means it should be entered with clear eyes and professional guidance.


Get qualified advice before you decide

This page is general information, not individualized tax, legal, or financial advice. Whether ROBS is appropriate for you depends on your specific finances, the business you are pursuing, and your goals. Before moving forward, consult your CPA, tax advisor, or financial advisor, and work with a qualified ROBS provider who can establish and maintain the structure in compliance with current IRS and Department of Labor rules. FCBB can refer you to vetted funding partners who specialize in ROBS and walk you through pre-qualification, and your FCBB advisor can help you see how retirement funding fits alongside the rest of your acquisition plan.