Roll existing 401(k)/IRA into a new C-corp 401(k), use funds to buy your own business — no tax, no penalty, no debt.
ROBS structure (IRS-blessed): (1) Form C-corp. (2) C-corp adopts a new 401(k) plan. (3) Roll existing 401(k)/IRA into the new plan. (4) Plan purchases QES (Qualified Employer Securities) of the C-corp. (5) C-corp now has cash from your retirement to buy/start a business. No tax, no penalty, no debt. Providers: Guidant Financial, Benetrends, CatchFire ($5K setup). Risk: business failure = retirement loss. IRS scrutinizes — must run legit corporate governance.
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ROBS — Rollovers as Business Start-ups — lets you move retirement money into a business you will run, without a distribution, without the 10% early-withdrawal penalty and without income tax at the time of the rollover. The mechanics are specific: you form a new C corporation, the corporation adopts a 401(k) plan, you roll your existing retirement account into that plan, and the plan buys newly issued stock in the corporation. The corporation now holds cash it can spend on the business, and the plan holds stock instead of cash.
The IRS has not called ROBS abusive, and it has not blessed it either. Its own compliance project described the arrangement as technically permissible while flagging that a large share of the plans it examined failed on follow-through — missing annual filings, no independent valuation, stock never actually issued, the plan effectively benefiting only the owner. The risk in ROBS is almost never the original rollover. It is the ongoing plan administration.
The single most common reason a ROBS plan is structurally impossible: the company cannot be an S corporation. A 401(k) trust is not an eligible S-corp shareholder, so the moment the plan owns stock the S election is invalid. If someone tells you they are running ROBS through an S corp, something is wrong — either the election, the ownership, or the story.
These are not optional formalities. Each one is something the IRS compliance project found missing in plans it examined, and each one is what turns a legitimate structure into a prohibited transaction under IRC §4975.
Illustrative figures, not advice. The comparison that matters is ROBS against simply taking the money out.
| Balance in a former employer's 401(k) | $120,000 |
|---|---|
| If distributed instead — federal tax at 24% | −$28,800 |
| If distributed instead — 10% early-withdrawal penaltyUnder age 59½ | −$12,000 |
| If distributed instead — state tax at 5% | −$6,000 |
| Cash left after a straight distribution | $73,200 |
| Cash into the C corporation via ROBSNo tax event at rollover | $120,000 |
| ROBS setup cost | −$5,000 |
| First-year administration | −$1,500 |
| Usable capital under ROBS | $113,500 |
| Difference vs distribution | +$40,300 |
ROBS puts roughly $40,000 more to work on the same $120,000 balance, and that equity typically unlocks more than its own size again in SBA 7(a) borrowing, since ROBS cash counts as an equity injection rather than borrowed money. The trade is that the retirement money is now concentrated in one private business with no liquidity and no market — and that you have taken on a plan you must administer every year for as long as it exists.
Map your retirement balances, credit and income against the funding routes that actually fit — including where a ROBS equity injection unlocks more borrowing than it costs.
See what capital you qualify forFormer-employer 401(k), 403(b) and traditional IRA balances generally roll. A current employer's plan usually cannot be touched while you are still there, and Roth money is a poor fit because you would be moving already-tax-free growth into a structure whose whole benefit is deferral.
The corporation has to exist before the plan, and the plan before the rollover. Reversing the order is how people end up with stock that was never validly issued. If the business is already an S corp or LLC, converting is part of the project, not an afterthought.
An off-the-shelf 401(k) document will not permit qualifying employer securities. This is why ROBS runs through specialist providers rather than a general payroll platform.
Trustee-to-trustee transfer into the new plan, the plan subscribes for newly issued shares, the corporation records the issuance in its stock ledger. Keep the subscription agreement, the ledger and the valuation together — that folder is your defense.
Lenders treat ROBS proceeds as an equity injection, which is exactly what an SBA 7(a) acquisition loan requires. Many buyers use ROBS for the 10% injection rather than for the whole purchase.
Valuation, Form 5500, participant notices, and plan coverage for any employee who becomes eligible. Put it on a recurring calendar the year you set it up, because the failures are almost always failures of attention in year three, not year one.
A retirement plan trust is not an eligible S-corp shareholder. The election is invalid from the moment the plan holds stock, and the fix is retroactive and expensive. C corporation or no ROBS.
Cash moves, the ledger never gets updated, and there is no evidence the plan bought anything. The IRS reads that as a distribution — which means tax and penalty on the whole balance, plus interest.
The plan must report asset value. With one illiquid holding, that requires a real appraisal. Guessing your own company's worth is the finding examiners look for first.
The plan has to be available to eligible staff. Designing coverage so nobody else can ever participate is the fastest route to a discrimination problem.
Using plan-funded corporate cash for personal expenses, or lending it back to yourself, is a prohibited transaction under §4975. That is a plan-disqualifying event, not a penalty you pay and move on from.
ROBS concentrates diversified retirement savings into one small business. That is the real cost, and no structure removes it. Size the rollover to what you could lose without wrecking your retirement.
No. A 401(k) trust is not an eligible S-corp shareholder, so the S election fails as soon as the plan owns stock. ROBS requires a C corporation. An existing S corp or LLC must convert first.
Yes, as a structure. The IRS has acknowledged it is technically permissible while warning that many plans fail their ongoing obligations — filings, valuations, stock issuance, employee coverage. The structure is legal; sloppy administration is what gets unwound.
Around $50,000 as a practical floor. With $4,000–$6,000 of setup and roughly $1,500 a year of administration, smaller balances lose too much of the benefit to cost.
Yes, and you should once the business supports it — you must be a bona fide employee. What you cannot do is pay personal expenses directly out of the rollover capital or lend it back to yourself.
That is one of the most common uses. Lenders treat ROBS proceeds as an equity injection rather than debt, which satisfies the injection requirement on a 7(a) acquisition loan.
The plan owns the stock, so the plan receives the sale proceeds and they stay inside the retirement system, tax-deferred, until you distribute or roll them out. Money that comes to you personally instead is a distribution with the usual tax consequences.
Generally no, and it would be a poor trade anyway. Roth growth is already tax-free; ROBS exists to avoid tax on a taxable balance.
Educational strategy content, not tax, legal, lending or investment advice. Lender overlays and program limits change — confirm current requirements with your lender before committing capital.
Shelter $69K/yr and borrow up to $50K from yourself.
Invest retirement funds in real estate, private equity, notes.
Use 401(k)/IRA to fund a business — no tax, no loan.
Shelter $100K–$300K+/yr for high-earning owner-only businesses.
Get $46K+/yr into Roth despite income limits.
Pre-tax in, tax-free growth, tax-free out — the only triple-tax account.
Borrow up to $50k against your own retirement — pay yourself interest.
Triple tax-free vehicle — the best account in the code.