April 28, 2025

Using Retirement Funds to Start Your Business: What You Need to Know About Rollover as Business Startup (ROBS)

Starting a new business can be exciting—and expensive. If you have substantial retirement savings, you might have heard of a strategy called a Rollover as Business Startup (ROBS). ROBS can allow you to invest your retirement funds into your own business without paying early withdrawal penalties or taxes.

While ROBS can be a powerful tool, it’s not without significant risks. If done incorrectly, it can trigger audits, penalties, or worse. That’s why it’s critical to understand how it works—and to seek the right legal guidance before moving forward.

Here’s what you need to know.

What Is a Rollover as Business Startup (ROBS)?

A ROBS is a way for entrepreneurs to fund a new business using their retirement accounts, typically a 401(k) or an IRA, without incurring early withdrawal taxes or penalties.

The general steps look like this:

1. You set up a C corporation (only C corps are eligible for ROBS).
2. You establish a new 401(k) retirement plan for your business.
3. You roll over your existing retirement funds into the new plan.
4. The new 401(k) buys stock in your C corporation.
5. Your corporation uses the money from selling that stock to fund its operations.

Done correctly, this creates a tax-advantaged way to inject cash into your startup.

The Legal and Compliance Landscape

While ROBS isn’t illegal, it’s heavily scrutinized by the IRS and Department of Labor because of the risks of:

• Prohibited transactions (using retirement funds improperly),
• Discrimination (not offering the 401(k) fairly to employees),
• Fiduciary breaches (mismanaging plan assets).

You must comply with several complex laws, primarily:

• The Internal Revenue Code (IRC)—which governs tax-qualified plans;
• ERISA (Employee Retirement Income Security Act)—which sets standards for retirement plans;
• Securities laws—if your corporation issues stock.

Failure to comply can result in disqualification of your retirement plan, immediate taxes, penalties, and even personal liability.

Key Risks to Watch Out For

1. Prohibited Transactions:
   If you personally benefit from the retirement funds outside the proper structure, you could trigger heavy tax penalties.
2. Failure to Offer 401(k) Benefits Fairly:
   If your business hires employees, your 401(k) must eventually be offered to them under nondiscrimination rules. It's not just for you.
3. Fiduciary Violations:
   As a plan sponsor and fiduciary, you have a duty to act in the best interests of all plan participants—not just yourself.
4. Audit Exposure:
   Businesses that use ROBS are more likely to be audited by the IRS, meaning more scrutiny into your business and personal finances.

Best Practices for a Successful ROBS

• Hire Experienced Advisors: Work with attorneys, CPAs, and retirement plan experts who know ROBS inside and out.
• Document Everything: Keep meticulous records of the corporation setup, 401(k) Plan creation, stock purchase, and financial operations.
• Stay Compliant Over Time: Your 401(k) Plan must continue to meet IRS and DOL requirements after the initial funding.
• Be Ready to Expand the Plan: If you hire employees, be prepared to offer them access to the 401(k) Plan, in compliance with ERISA.
• Monitor Your Business and Plan Health: Regular legal and tax reviews help you avoid costly mistakes.

Is ROBS Right for You?

ROBS can be a smart way to start your dream business, but it is not the right move for everyone. It’s a high-risk, high-reward strategy that requires careful planning and strong legal oversight.

If you are considering using your retirement savings to fund your business, consult an experienced legal team early in the process. Setting up your ROBS the right way from the start can save you from headaches—and major financial setbacks—down the road.

Contact Gilpin Givhan today to schedule a consultation. We can help you structure your business legally, protect your retirement savings, and set you up for success.