Where did ROBS come from? How long has this been around?

Rollovers for Business Start-ups (ROBS) has been around for decades – since 1974. It was made possible when Congress wanted to give American workers another option for growing their retirement assets.

Is using my 401(k) to fund a business a tax loophole?

ROBS is not a tax loophole. In 1974, Congress passed the Employee Retirement Income Securities Act (ERISA), which works in conjunction with specific sections of the Internal Revenue Code (IRC) to make ROBS a legal, legitimate strategy for accessing your retirement assets to start or buy a small business.

Can I combine my retirement funds with someone else’s to fund the business?

Yes, multiple people can combine their retirement assets to create the ROBS structure. This means you and a spouse, business partner, or group can use retirement funds to start or buy a business together.

Can I pay myself a salary with ROBS?

Yes! ROBS actually requires you to be an employee of the business and to be paid fairly. The salary you pay yourself needs to fall within “reasonable bounds,” which means you shouldn’t pay yourself twice as much as your business’s annual revenue, as that’s rather unreasonable.

Do I have to offer a 401(k) to all of my employees?

Yes. ROBS requires you to offer a 401(k) plan to all eligible employees of the company, as ROBS itself is meant to be a tool to grow retirement assets.

Can I use ROBS to finance my franchise?

Yes! ROBS isn’t limited to independent businesses. Since a franchise is a small business, you can use most types of financing (including ROBS and SBA loans) to fund your franchise just like you would with any other business.

Do I have to use a C corporation?

Yes, it’s a ROBS requirement. Your company is funded through a stock purchase called Qualified Employer Securities (QES), which only works if you’ve set up a C corp.

What about double taxation for the C corp?

The term “double taxation” refers to the taxes you’d pay on dividends paid by the C corp. Often these taxes can be mitigated or avoided with the help of a qualified tax professional.

Can my spouse or someone else co-invest and/or be involved in the business?

Yes, co-investors and co-owners are allowed with ROBS.

What type of business can I buy with ROBS?

ROBS lets you buy or start up any legal business or franchise. ROBS can’t be used to fund a business deemed to be “solely the investment of capital” (like a factoring company or a means of passive income). Typically, the business also needs to be legal on a federal level, not just at the state level (for example, marijuana distribution is only legal in some states and not federally).

Do I have to use all of my retirement money? Can I just use part of it?

You can use as much or as little of your retirement assets as you want. We do suggest that you roll over at least $50,000, as there are diminishing returns to rolling a smaller amount.