ROBS Explained: Funding a Business With Your Retirement Savings

How a ROBS is structured

You form a C corporation, the corporation sponsors a new retirement plan, you roll your existing retirement funds into that plan, and the plan buys stock in the corporation, which gives the business cash.

The IRS describes the typical structure in its ROBS guidelines memo:

1. Form a C corporation. ROBS requires a C corporation because the plan must be able to buy its stock.
2. The corporation adopts a qualified retirement plan, usually a 401(k)-type profit-sharing plan.
3. You roll eligible funds from an old 401(k) or IRA into the new plan.
4. The plan buys company stock with the rolled-over money.
5. The corporation uses the cash to start or buy the business.

You typically must work in the business as an employee to participate in the plan. ROBS providers charge setup and ongoing administration fees, so ask for all costs in writing.

What the IRS watches for

The IRS focuses on whether the plan discriminates in favor of the owner, whether the stock was valued correctly, and whether required annual filings are made.

On its ROBS compliance project page (checked October 2026), the IRS describes several recurring problems:

• Discrimination. If the stock purchase option is available only to the founder and not to later employees, the plan can fail nondiscrimination rules.
• Stock valuation. If the stock is not bought at a supportable value, it can be a prohibited transaction.
• Missed filings. Many ROBS sponsors wrongly assumed they did not need to file an annual Form 5500 return. The IRS says the usual one-participant exception generally does not apply because the plan, not the individual, owns the business.

The IRS also reported that many ROBS businesses it reviewed had failed or were struggling, and some owners lost both their business and their retirement savings.

Pros and cons at a glance

ROBS gives debt-free startup capital without early withdrawal taxes, but it concentrates retirement savings in one risky asset and carries ongoing compliance work.

Ongoing duties after the business opens

You must run the plan as a real employee benefit plan: file annual returns, value the stock, let eligible employees participate and keep records.

• File the plan's annual return on time.
• Have the company stock valued each year by a qualified appraiser if your provider or advisor requires it.
• Offer the plan to eligible employees under the plan's terms.
• Keep business and plan money separate, and do not use plan assets for personal purposes.
• Pay yourself a reasonable salary and run payroll properly. See how to run payroll.
• Work with a provider or ERISA attorney who will still be there in year five, not just at setup.

Questions to answer before you commit

Ask whether you could afford to lose this money, how long the business can last before profit, and whether a smaller or financed start would work instead.

1. If the business fails in two years, can you still retire on what is left?
2. Have you built a realistic budget for startup costs and at least six months of operating losses? Our startup costs guide helps.
3. Do you understand C corporation taxation, including tax on profits at the corporate level?
4. Would you use only part of your retirement funds and finance the rest?
5. Has an independent CPA or ERISA attorney, not just the ROBS seller, reviewed the plan?

Red flags when choosing a ROBS provider

Be cautious of providers who downplay compliance, promise you can skip annual filings, or push you to roll over more than the business plan needs.

• Skipping filings. Any suggestion that you do not need to file an annual plan return conflicts with what the IRS has published about ROBS.
• All-in pressure. A provider paid on setup may encourage rolling your entire balance. Roll only what the plan requires, and keep a reserve.
• No ongoing support. Setup is the easy part. Ask who handles annual valuation, filings and employee eligibility in years two through five, and what it costs.
• No independent review. Insist on a CPA or ERISA attorney who does not work for the provider.
• Vague fees. Get setup fees, monthly fees and exit costs in writing.

Also plan the exit. Ask how the structure unwinds if you sell the business, close it or convert to another entity later, and what that costs.

Alternatives and where ROI Funder fits

Alternatives include SBA loans, microloans, family money, equipment financing and, once the business has history, revenue-based working capital.

Illustrative example. A buyer wants to purchase a franchise for $300,000 and has $400,000 in a 401(k). Instead of rolling $300,000, she rolls a smaller amount for the equity injection and finances the rest with an SBA-guaranteed loan, keeping most of her retirement savings diversified. A CPA reviews both paths.

ROI Funder does not set up ROBS plans and does not fund startups under six months old. Once your business has 6+ months of history, $20,000+ in monthly revenue and 500+ FICO, ROI Funder can place working capital, equipment financing and term loans, which can reduce the need to pull more from retirement accounts later. Before that point, see startup funding options.