ROBS 401k Guide: Fund Your Business With Your Retirement
You've spent 25 years building a retirement account. Now you want to start or buy a business. ROBS (Rollover for Business Startups) lets you use your 401k to fund it—without paying the early withdrawal penalty or taxes. It's 100% legal, but it's not for everyone. Here's what you need to know.
What is ROBS?
ROBS stands for Rollover for Business Startups. In plain English: it's a legal way to use your 401k, IRA, or 403b to fund a business without paying the 10% early withdrawal penalty or immediate taxes. The IRS approved this strategy—it's been used since the 1970s.
Instead of taking a loan (and paying interest to a bank), your retirement money gets invested directly in your own company. Think of it this way: your 401k used to own stocks. Now it owns stock in YOUR business. If the business succeeds, your retirement grows. If it fails... well, that's the risk.
How ROBS Works (5 Steps)
Form a C-Corporation
Create a new C-Corp (required structure for ROBS). Your business must be a C-Corporation.
Establish a 401(k) Plan
The new C-Corp sponsors a 401(k) plan that allows investment in employer stock.
Roll Over Retirement Funds
Transfer your existing 401(k)/IRA funds into the new company's 401(k) plan tax-free.
Purchase Company Stock
The 401(k) plan uses the rolled-over funds to buy stock in your C-Corporation.
Fund Your Business
The C-Corp now has capital to use for business operations, equipment, inventory, etc.
ROBS 401k: Pros and Cons
Advantages
- No early withdrawal penalties (avoid 10% penalty)
- No income taxes on the rollover
- No debt or monthly loan payments
- Keep full ownership of your business
- Use funds for any legitimate business purpose
- Continue contributing to your 401(k) as an employee
- Potential for significant wealth building
Risks & Considerations
- Risk of losing retirement savings if business fails
- Must form a C-Corporation (more complex structure)
- Setup costs ($3,000-$6,000 typically)
- Ongoing compliance and administration required
- IRS scrutiny if not set up properly
- Must work actively in the business
- Not suitable for all business types
Best ROBS 401k Providers (2026)
Working with an experienced ROBS provider is essential for proper setup and ongoing compliance.
Guidant Financial
Industry leader with 25+ years experience
Benetrends
Pioneer of ROBS funding since 1983
Is ROBS Right for You?
ROBS May Be Right If You:
- Have $50,000+ in retirement savings
- Want to start or buy a business
- Plan to work actively in the business
- Have strong business experience/skills
- Want to avoid debt financing
- Understand and accept the risks
- Are willing to operate as a C-Corp
ROBS May NOT Be Right If You:
- Have less than $50,000 in retirement funds
- Plan to be a passive investor only
- Are risk-averse about retirement savings
- Want to run a sole proprietorship or LLC
- Don't want ongoing compliance responsibilities
- Are nearing retirement age
- Have limited business experience
ROBS 401k Rules & Requirements
C-Corporation Required
Your business must be structured as a C-Corporation to use ROBS funding.
Active Employment
You must be a bona fide employee of the company, not just a passive investor.
Fair Market Value
Stock must be purchased at fair market value as determined by an independent valuation.
Annual Compliance
Required annual filings include Form 5500 and corporate tax returns.
Non-Discrimination
The 401(k) plan must be available to all eligible employees, not just owners.
Prohibited Transactions
Certain transactions between you and the plan are prohibited by ERISA.
ROBS 401k: Frequently Asked Questions
What is a ROBS 401k?
ROBS (Rollover for Business Startups) is an IRS-approved strategy that allows you to use your retirement funds (401k, IRA, 403b) to start or buy a business without paying early withdrawal penalties or taxes. Your retirement plan invests in your own company's stock.
Is ROBS legal?
Yes, ROBS is 100% legal and IRS-approved. It's been used since the Employee Retirement Income Security Act (ERISA) was passed in 1974. The IRS has issued guidance confirming its legitimacy when properly structured.
How much money do I need for ROBS?
Most ROBS providers require a minimum of $50,000 in eligible retirement funds. The average ROBS transaction is around $150,000-$200,000. There's no maximum limit—some entrepreneurs have used $500,000+ in retirement funds.
What types of retirement accounts can I use?
You can use most tax-deferred retirement accounts including 401(k), 403(b), 457, Traditional IRA, SEP IRA, and profit-sharing plans. Roth IRAs typically cannot be used for ROBS.
What are the costs of setting up ROBS?
Typical setup costs range from $3,000 to $6,000, which includes C-Corp formation, 401(k) plan setup, and legal documentation. Ongoing administration fees are typically $100-$150 per month.
Can I use ROBS to buy a franchise?
Yes, ROBS is very commonly used for franchise purchases. Many franchisees use ROBS combined with SBA loans to fund their franchise investment.
What happens if my business fails?
If your business fails, you could lose the retirement funds you invested. Unlike a traditional 401(k) invested in stocks, your retirement is now tied to your business's success. This is the primary risk of ROBS.
Do I need to pay myself a salary?
Yes, if you work in the business, you must receive reasonable compensation. This also makes you eligible to continue contributing to the company's 401(k) plan as an employee.
Ready to Be Your Own Boss?
You've worked for someone else long enough. If you've got a solid business plan and understand the risks, ROBS can help you fund your dream without bank loans or credit card debt. Talk to a specialist—it's free.
No obligation. Learn if ROBS is right for your situation.
Protect Remaining Retirement Funds with Gold
After using ROBS for your business, consider diversifying any remaining retirement savings with precious metals for protection.