What they are and how they work

If you’re planning to start a business, you may have heard of ROBS. ROBS stands for Rollover(s) as Business Startup. They’re also commonly called Rollover for Business Startups. ROBS allows you to roll your retirement savings into funding a business tax-free.

That said, ROBS should be pursued with caution, as they can put a person’s retirement savings at risk. It’s also a very complex transaction, with the IRS keeping a close eye on them because they are tax-free.

If you’re considering using a ROBS, you should consult an accountant or financial advisor to see if this is the best way for you to fund a new business. Keep reading to learn more about ROBS and alternatives for financing a small business.

Key Takeaways

  • Rollovers as business startups allow you to roll retirement savings into funding a business tax-free.

  • A ROBS will put your retirement savings at risk.

  • ROBS can be a complex transaction, and the IRS watches them closely.

  • Always consult with an accountant or financial advisor to make sure a ROBS transaction is right for you.

What are rollovers as business startups transactions?

A ROBS transaction is tax-free and moves money from your retirement savings account into funding a business. According to the IRS, the ROBS plan uses those retirement assets to buy stock of the new C corporation, which is then used as funds for the business.

While normally withdrawing funds from a retirement account early would come with penalties, no taxes or penalties are associated with ROBS, as you are not fully withdrawing the money but rolling it into a new business. Since ROBS are tax-free and debt-free, they are a more attractive option than conventional startup business loans and debt financing.

How a ROBS transaction works

ROBS transactions are quite complex. According to the International Franchise Association, the steps include:

1. Form a new C corporation, which is a corporate structure with shareholders.

2. Create a 401k ROBS retirement plan for that corporation.

3. As a business owner, you become an employee of the C corporation and the beneficiary under the new retirement plan.

4. Roll the funds from your existing retirement account into the new C corp’s retirement plan.

5. Use the retirement funds to buy stock in the C corporation.

6. As the business owner, use the proceeds from the stock sale to fund the new business.

Pros and cons of ROBS financing

There are both benefits and drawbacks to ROBS funding, which should be reviewed to ensure you’re doing what’s right for your finances and business.


  • No taxes or debt. ROBS is a tax-free way to fund a startup or existing business without taking on new debt.

  • No credit requirements for approval. ROBS could be a funding option for those with bad credit.

  • Not subject to lender approval. A ROBS transaction doesn’t require a loan approval process. which often requires strict business requirements, like a certain time in business or a set minimum annual revenue.


  • Risks your retirement savings. There is no guarantee of success, as the IRS states that most ROBS programs ended in failed businesses, such as high rates of bankruptcy, liens and even corporate dissolutions by Secretaries of State.

  • Still need to file taxes. Though the option is tax-free, there are still specific tax filing requirements for ROBS.

  • Complicated requirements. Everything has to be completed to meet IRS requirements, so you will likely need to pay an accountant to help with this process.

Alternatives to ROBS

Before completing a ROBS transaction, you should consider other ways to fund your business, such as SBA loans. With many small business financing options available, there may be something that can work for you that doesn’t directly risk your retirement savings.

Business loans

Business loans are the most conventional way to fund a new business. You apply for one lump sum of cash and pay back that loan amount and interest over the loan term. Depending on the lender and your loan terms and conditions, you may have a secured or unsecured business loan.


Bankrate insight

You can check out our business loan calculator to see what repayment would look like for a business loan. Also, if you’re considering a ROBS transaction due to credit, there are lenders who offer bad credit loans to assist subprime borrowers with financing.  

Business credit card

Business credit cards are like personal credit cards but for business expenses. You may be able to get perks like cash back, rewards points or an introductory APR. You’ll see a lower limit than with a traditional business loan, but you can potentially avoid interest charges if you pay your bill every month.

Business lines of credit

Business lines of credit have revolving borrowing amounts. During the draw period, you can pull what you need to use, and then there is a repayment period.

You can find business lines of credit in both secured and unsecured options. Lines of credit are popular because you only pay interest on what you use, making it a less risky option than using your retirement savings.

Peer-to-peer lending

This alternative lending option matches you with investors or people interested in funding your business. Typically, this is done through online lending platforms like Kiva.


With crowdfunding, people donate to businesses, sometimes in exchange for rewards or equity. Crowdfunding usually goes through digital platforms like Kickstarter or Indiegogo.

Personal loan for business

Like business loans, personal loans come in lump sums with interest that you pay for the length of the loan. As you’re personally liable for a personal loan, you could risk your credit or assets instead of a business’s. Personal loans may be easier to obtain than business loans, but some lenders may restrict fund usage.


A business grant is a great small business financing option as the funds don’t need to be repaid. That said, applications can be long and highly competitive. Additionally, business grants are usually taxable.


Bankrate insight

Grants are available for many different types of businesses and business owners, including:

The bottom line

ROBS can be a tax-free way to fund a business by transferring your own retirement funds into the new business. But it’s a complex process. Completing a ROBS transaction should ideally be done by a knowledgeable financial professional. The IRS monitors ROBS transactions and has specific filing requirements related to them.

Frequently asked questions

  • Can you use ROBS for an existing business?

    Yes, you can use a ROBS for an existing business if it’s a C corporation. In this case, you wouldn’t need to form a brand-new business.

  • Is ROBS a good idea?

    You would need to work with a financial professional or accountant to determine if a ROBS makes sense for you. It can all come down to how much you can spare in retirement savings, how risk-averse you are and if you’re willing to make your new business a C corporation. Before committing to ROBS, you should consider all of your small business financing options, like the best startup business loans.

  • How does the ROBS program work?

    The ROBS program rolls your personal retirement savings into funding a new or existing C corporation business. Your personal retirement funds get rolled into a retirement fund under the C corp. You then use the transferred retirement funds to buy stock in the company and use stock sale proceeds to fund the business.

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