Using ROBS to Fund Your Startupp: What Entrepreneurs Need to Know

Starting a business often begins with the same question: how will I fund it? Many entrepreneurs look to small business loans, personal savings, or investors. But there’s another, lesser-known option—one that can help you use your retirement savings to launch your venture without taking on debt or giving up equity. It’s called a ROBS, short for Rollover as Business Startups .

In this post, we’ll walk through what a ROBS is, how it works, and the key pros and cons entrepreneurs should consider.

What Is a ROBS?

A ROBS arrangement allows you to use money from your 401(k) or other eligible retirement account to fund your new or existing business. Unlike a loan, you’re not borrowing against your retirement savings—you’re rolling them over into a structure that buys stock in your company.

In short: it’s a way to invest your own retirement funds into your own business.

How Does a ROBS Work?

Here’s the general process:

1. Set up a C Corporation – A ROBS can only be done with a C-Corp structure, because the retirement plan must be able to purchase stock.

2. Create a New Retirement Plan – Your corporation sets up a qualified retirement plan (often a 401(k)).

3. Rollover Existing Funds – You roll over money from your personal 401(k) or IRA into the new company retirement plan.

4. Buy Company Stock – The retirement plan then uses those funds to buy stock in your new business.

5. Use the Capital – The company now has cash from the stock purchase, which you can use to fund operations, buy equipment, or cover startup costs.

Advantages of a ROBS

• No debt – You don’t have to worry about monthly loan payments.

• No interest – Since it’s not a loan, you won’t accrue interest.

• Preserve ownership – Unlike seeking investors, you don’t give up equity.

• Flexibility – You can use the funds for almost any legitimate business purpose.

Risks and Considerations

Of course, ROBS is not without its drawbacks. Entrepreneurs should weigh these carefully:

• Complex compliance – A ROBS must be structured and maintained correctly under IRS and Department of Labor rules. That usually means working with a professional tax provider.

• Retirement risk – You’re tapping into your retirement savings, so if the business fails, you could lose your nest egg.

• Ongoing obligations – Once set up, you must maintain the retirement plan for eligible employees, not just yourself.

• C-Corp only – You lose some flexibility in entity choice, since ROBS requires a C Corporation.

Is a ROBS Right for You?

A ROBS can be a powerful funding tool if:

• You have significant retirement savings.

• You want to avoid debt or investors.

• You’re comfortable with risk and committed to your business.

But it’s not for everyone. For some founders, keeping retirement funds intact and pursuing loans, grants, or investment may be the safer route.

Final Thoughts

Funding a startup is one of the toughest hurdles for entrepreneurs. ROBS offers a unique path—one that lets you bet on yourself using your own retirement funds. But because of the risks and complexity, it’s best pursued with professional legal and financial guidance.

If you’re considering a ROBS or other funding strategy, our team at Fourscore Business Law can help you understand the legal and business implications so you can make the best decision for your future. Book a call today.