Every brilliant business idea needs fuel, yet so many entrepreneurs struggle to find the capital needed to fund their business. A lesser-known funding strategy, a Rollover for Business Startup (ROBS), enables small business owners to invest retirement savings in their business—without paying taxes or early withdrawal penalties.
What is ROBS?
ROBS enables clients to use funds from qualified pre-tax retirement accounts – like a 401(k), traditional IRA, 403(b), or 457(b) – to finance a new or existing business.
Here’s how it works:
1. A new C Corporation is formed (an IRS requirement for ROBS).
2. That corporation establishes a qualified retirement plan, typically a 401(k).
3. The client rolls funds from their existing plan into the new 401(k).
4. The new plan uses those funds to purchase stock in the C Corporation.
5. The business receives the funds as working capital.
ROBS is not a loan—there are no repayments, interest charges, or credit checks. The retirement funds retain their tax-deferred status within a compliant structure.
Start-Up Business Capital
ROBS may be a good fit for small business owners who:
– Have at least $50,000 in qualified pre-tax retirement accounts.
– Are ready to start or buy a business or franchise, or fund growth.
– Prefer avoiding debt or giving up equity to outside investors.
– Will actively manage the business (passive investors do not qualify).
– Are using an SBA-guaranteed loan and need funds for the required equity injection (down payment).
ROBS can be especially useful for those transitioning from traditional employment to business ownership. It offers a way to access capital without incurring debt or giving up equity, letting new business owners invest directly in their own venture and focus fully on building and managing their business. This means they’re not just securing funding, they’re personally invested in their own success from day one.
Benefits of ROBS
– Debt-Free Capital: Fund your business without loans or interest.
– Tax Efficiency: No early withdrawal penalties or immediate tax liability.
– Quick Access: The structure can be implemented relatively quickly.
– Flexibility: Use the funds for almost any business purpose, including buying property and equipment, paying salaries, or rent, etc.
Ready to get started? We provide dedicated support and advice ensuring a smooth and efficient process.
Learn more about ROBS or schedule a conversation.