Starting a Business With 401(k) Funds

start a business

Starting a business means you need C-A-S-H. Most entrepreneurs don’t have pockets deep enough to finance business startup costs on their own, so they have to find another source. Traditional funding means taking out a small business loan or finding investors, but either way you end up with debt – and lots of it. However, a ROBS 401(k) plan lets you kick off your new business with no debt.

Yes, you read that right, NO DEBT. Read on to find out how!

What is a ROBS 401(k) Plan?

Rollovers as Business Startups (ROBS) is a special arrangement that allows you to withdraw money from your 401(k) or another retirement fund to finance a franchise, buy an existing business, or start a new business from scratch.

Why Use ROBS to Fund a New Business?

Typically, withdrawing money from your retirement accounts before the age of 59 ½ results in penalties and income taxes to pay. But ROBS allows you to create a self-directed 401(k) retirement account that offers control over the investments in your portfolio so you can direct that money towards your new business venture – tax free!

To get all of the benefits of ROBS business financing just takes is a little legal assistance and the right ROBS CPA firm to help manage your business!

ROBS Business Financing - How it Works

ROBS empowers you to finance your own business with your own money. Here’s how the process goes:

1. Establish a C Corp

Set up a C Corporation with the help of an experienced attorney. This is the only type of entity that works with a ROBS plan. We work closely with experienced ROBS attorneys that can help get you started.

2. Create a Self-Directed 401K Plan for Your Corporation

This type of 401(k) plan gives you control over the investments in your portfolio.

3. Pass the Bucks

Roll over funds from an existing 401k or Roth IRA into the newly created 401(k) plan.

4. Purchase Stock in Your Corporation

The self-directed 401(k) plan invests the funds into your business in exchange for stock in the corporation.

5. Invest in Yourself

Use the proceeds from the stock you’ve just issued to buy a franchise, another type of business, or start a new business. No business loan needed.

Are ROBS Plans Legal?

You may be thinking – “Hey this all sounds great, but is it really legal?” The answer is YES. These plans were first introduced as part of The Employer Retirement Income Security Act of 1974 (ERISA) as a way for taxpayers to have more control over their retirement investments.

While these plans are perfectly legal, there is a great deal of compliance that taxpayers need to be aware of before getting started with a ROBS arrangement. In 2008, The IRS recognized ROBS as a legitimate business financing option in their published guidance on their findings from businesses who used ROBS arrangements to start their business. The guidance found that some business owners were out of compliance – and potentially in hot water with the IRS.

Of course, you must play by the rules to keep the IRS happy. The right ROBS accountant, like Baum CPA, can help you navigate the labyrinth of government compliance, provide helpful insights on growing your business, and give you all the professional services you need to run the business you’ve been dreaming about. From bookkeeping to taxes and everything in between, Baum CPA has got you covered.


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

ROBS 401(k) Plan: The Benefits