ROBS 401(k) Plan: The Benefits

ROBS benefits

Starting a business is a big decision which can change one’s life forever. We don’t look to ROBS if we are hunting for tax-savings strategies. Instead, look to ROBS as a mechanism to fund a business venture that requires a big investment of capital to get started.

Not everyone can bootstrap their business ideas off a few bucks – some businesses need big sources of cash from day one! If you’ve ever wanted to own a restaurant, found a microbrewery, or maybe purchase an existing franchise – you’ll need capital. With a ROBS arrangement, you can legally tap your retirement accounts to come up with the cash you need to pursue the vision you have.

Here are just a few of the reasons to consider a ROBS plan:

Start a Business Debt-Free

ROBS is a great way for entrepreneurs to finance their own business venture. You don’t have to deplete your personal savings account, borrow from family, or take out a second mortgage on your house. Instead, you’re using money that you wouldn’t have touched until retirement as seed money for your business startup.

ROBS is an equity-financing alternative with unique advantages over traditional bank debt or other debt capital. As a ROBS CPA firm, Baum CPA can show you how to get the most of your financing arrangement.

Get on the Fast Track to Profits

When your new business isn’t saddled with a monthly loan payment, there’s less overhead so you’re able to turn a profit much quicker. Having less debt also helps increase the cashflow of the business, giving you more resources to succeed.

Avoid Taxes and Penalties on Early Withdrawals

ROBS is a legal, tax-deferral vehicle that allows you to shift money out of your retirement plan and invest it into your new business without wasting money on the penalties paid if you simply withdrew the funds prematurely.

Attract the Best Employees for Your Business

Not many small businesses offer their own 401(k) plan but the ROBS structure requires that you offer the plan to your employees. This makes your business an attractive place to work for the best candidates in your industry so hiring is easier and your work force is stronger.

ROBS arrangements also have additional requirements about offering the plan to your team. As a ROBS CPA firm, Baum CPA can show you how to navigate these requirements to keep you in compliance.

Be in Control Your Financial Future

ROBS arrangements require the taxpayer to be full-time employees of their corporation – so this isn’t how you’ll fund that moonlight side-gig you might have been dreaming about. Instead, this is how you can hand-pick the career you want – in the industry or franchise you want – on your terms.

As a shareholder employee, you’ll earn a reasonable salary that is reported on Form W-2. We will explain how to properly report your wages, help you determine a reasonable salary for the work you perform, process payroll for your employees, and work to ensure W-2s and 1099s are issued on time.

By taking advantage of ROBS, you can create the life you want through your small business and achieve the financial freedom you’ve always dreamed about.

Retirement Building Strategy

If done correctly, a ROBS arrangement can send dividends your way and allow you to distribute dividends back into your retirement account. Just like owning stock in a publicly traded corporation, your 401(k)’s investment in the C-Corporation is entitled to dividends in accordance with its percentage of ownership of corporate stock.

In the beginning, a ROBS shareholder usually owns 5-25% of their company stock and their retirement account owns the remainder. Over time, shareholders may decide to buy back some or all their corporation to meet their financial needs. Others might stay a minority shareholder so they can pay bigger dividends back into their retirement account.

No matter which situation applies, the decision to buy back stock is complex, requires a formal business valuation, and should be considered solely based on the shareholder’s long-term goals.

We can help explain your choices from a tax perspective if you are considering a stock buy-back or looking to issue shares. We can also get you in touch with the right professionals to help with legal assistance and business valuations when the time comes.


Call us now at 719-493-9499 or request a consultation online to learn how to get started with ROBS.

Why Work with a ROBS CPA?