If you’re looking to start or expand a business and want to avoid debt or draining your savings, ROBS funding might be the perfect solution. Short for Rollovers as Business Startups, this innovative funding method allows entrepreneurs to invest in their own business using their pre-tax retirement funds without paying taxes or early withdrawal penalties.
What Is ROBS Funding?
ROBS, or Rollovers as Business Startups, is a specialized financing structure that enables you to roll over funds from a qualified retirement account—like a 401(k)—and invest them into your own business. Rather than using those funds to purchase stock in companies like Amazon or Coca-Cola, you’re using them to purchase stock in your own company. The result? You’re leveraging your retirement savings to build your future on your terms.
What Types of Businesses Can Be Funded with ROBS?
ROBS is incredibly flexible and can be used for:
- Starting a brand-new business or franchise
- Purchasing an existing business
- Injecting growth capital into an established business
As long as the business is a legal entity and actively operating (not a passive investment), ROBS can be a viable funding option.
Can ROBS Be Used for Franchises or Non-Franchise Businesses?
Yes! ROBS can be used for franchise and non-franchise businesses alike. Many entrepreneurs choose to fund franchise startups using ROBS due to the model’s proven systems and support. However, if you have your own concept or want to acquire an existing independent business, ROBS still applies.
Will I Have to Pay Taxes or Penalties?
That’s the beauty of ROBS—you don’t pay taxes or penalties. The transaction is structured as a rollover, not a distribution. Your funds move from one qualified retirement plan to a new plan created for your business. That plan then purchases stock in your company, giving your business the capital it needs tax- and penalty-free.
What Types of Retirement Plans Qualify for ROBS?
ROBS can be funded using many types of qualified retirement accounts, including:
- Traditional 401(k)s
- Traditional IRAs
- SEPs and SIMPLE IRAs
- Pension plans
- Annuities
- Thrift Savings Plans (TSPs)
- Roth 401(k)s (but not Roth IRAs)
Keep in mind, inherited IRAs and Roth IRAs are not eligible. Also, if your plan is tied to a current employer and you’re not leaving that job, you may not be able to access those funds. However, some plans allow an in-service rollover, making those funds eligible without job separation.
Is ROBS Right for You?
ROBS funding is a powerful tool, but it’s not a one-size-fits-all solution. At Benetrends, we’ve helped thousands of entrepreneurs successfully launch and grow their businesses using this strategy. If you’re considering business ownership and have retirement funds available, let’s talk. Our experts can help determine if ROBS is the right fit for your goals.
Want to learn more about how ROBS can work for you?
Contact Benetrends today to schedule a personalized funding consultation.
Kelly Krueger, Senior Funding Consultant
Contact Kelly: https://www.benetrends.com/kelly-krueger/