OVERVIEW OF THE 401(K) ROLLOVER AS BUSINESS STARTUP (ROBS)
ROBS lets entrepreneurs use pre-tax retirement funds to invest in a business without early withdrawal penalties or taxes. This involves rolling over existing retirement funds into a new 401(k) plan, which then invests in a newly formed C-Corporation.
What does the process look like?
Establish a C-Corporation: Create a new C-Corporation for your business
Set Up a New 401(k) Plan: The C-Corporation sponsors a new 401(k) plan that you will control
Roll Over Existing Funds: Transfer funds from your existing retirement accounts into the new 401(k) plan
Invest in the Business: The new 401(k) plan uses the rolled-over funds to purchase stock in the C-Corporation, providing the capital needed to start or buy the business
Is this legal? Yes, ROBS are legal and recognized by the IRS. The legislation enabling a 401(k) plan to purchase stock in the plan sponsor was passed in 1974.
How long does it take to get funded? On average, the ROBS funding process takes about 4-5 weeks from start to finish.
Are there requirements to pay back the money I use with ROBS? No, unlike loans ROBS is Debt-Free funding, there are no requirements to pay back the funds you rollover with ROBS.
Can I combine ROBS with other funding sources? Yes, many entrepreneurs use ROBS alongside SBA loans and other funding sources to finance their business.
Are there any requirements for my retirement funds? Yes, most retirement funds are eligible, including 401(k), IRA, 403b, 457, SEP, Pension Plans, Thrift Savings Plan (TSP -Military), Annuities, KEOGHS. Key Point—Retirement funds must be pre-tax, so no ROTH 401(k) or IRA.
How can I do all of this? Using a Third-Party Administrator (TPA) like Tenet Financial Group is vital for ROBS funding. We handle the setup, fund rollovers, IRS compliance, and annual filings. Tenet provides ongoing administrative support, so business owners can concentrate on their operations while protecting their retirement investments.
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