ROBS: using your 401(k) to start a business, with the costs counted

How a ROBS is put together

The IRS’s 2008 guidance memo describes the same sequence providers use today:

1. You form a new C corporation. That’s the structure the IRS memo describes and the one providers use; an S corporation or LLC would change how the plan is taxed on the profits.
2. The corporation adopts a new 401(k) or profit-sharing plan that allows investing in company stock.
3. You roll over money from an old 401(k) or IRA into the new plan. Because it’s a rollover, the move itself isn’t taxed. That holds only while the plan stays qualified; the problems below can undo it.
4. The plan buys the corporation’s stock with that money, at a price set by a valuation.
5. The corporation now has cash. It uses it to start or buy the business, and usually pays you a salary to run it.

You don’t own the business directly. Your retirement plan does, in whole or in part, and you control the plan as its trustee. That’s where the rules get strict.

What the IRS found when it looked

The IRS ran a ROBS compliance project from late 2009 to 2010. Its findings are still on the IRS’s ROBS page:

• Many businesses failed. The IRS says “most ROBS businesses either failed or were on the road to failure” in its sample, with bankruptcies, liens and dissolved corporations. Its final report said many had gone out of business within three years, while warning the sample was too young for a long-term view. No IRS source gives a failure percentage, and neither does this page.
• Missing Form 5500s. Owners were told they didn’t need to file because of the one-participant exception. They did need to.
• Closed plans. Some owners amended the plan after setup so later employees couldn’t join or buy stock. That can break the discrimination rules and disqualify the plan.
• Thin valuations. The stock purchase is only exempt from the prohibited transaction rules if the plan pays “adequate consideration.” Appraisals “devoid of supportive analysis” put that exemption at risk, with excise taxes of 15% and then 100% of the amount involved.
• Fees. Promoter fees paid out of the stock proceeds back to the promoter can themselves be a prohibited transaction.

The Department of Labor has a say too. The exemption that lets the plan buy your company’s stock is in both ERISA section 408(e) and IRC section 4975(d)(13), and the Labor Department interprets the prohibited transaction rules for both agencies (Reorganization Plan No. 4 of 1978). The IRS page and the 2008 memo remain the only official guidance aimed at ROBS specifically; this page was checked against both on October 24, 2026.

What you take on

The company has to be a C corporation, so profits are taxed at 21% inside it, and anything you take out as a dividend is taxed again on your own return. Salary is deductible to the company, which is why owners often pay themselves that way, but it has to be reasonable for the work you do. The calculator shows the dividend case as the upper bound.

The plan is a real retirement plan, not a wrapper. Once you hire eligible employees, it has to be offered to them on the same terms, including the chance to buy company stock. Every year it needs a full Form 5500, a valuation of the stock and someone administering it. Ask any provider exactly which of those its monthly fee covers.

And there’s no floor. If the business fails, the plan’s only asset is stock in a company that no longer exists. Nothing was borrowed, so there’s no repayment schedule to keep the savings coming back, and no deduction to soften the loss.

ROBS next to the other ways to fund a business

	ROBS	401(k) loan	401(k) withdrawal	SBA 7(a) loan
How much	Your eligible rollover balance	$50,000 or half your vested balance	Your balance	Up to $5 million
Tax when you take it	None	None	Income tax plus 10% under 59½	None
Repayment	None; the plan owns stock	5 years, by payroll	None	Monthly, with interest
Need a current employer plan?	No	Yes, and you must still work there	No	No
Retirement money at risk	All of it	The loan amount	Gone already	None, unless used as equity
Ongoing cost	Provider fees, 5500, valuation	Plan loan fee, if any	None	Interest, SBA fees

Guidant, one provider, says on its site that it looks for at least $50,000 to roll over.

The SBA angle

SBA lenders accept ROBS money as the down payment on a 7(a) loan, with extra paperwork and your personal guaranty. What they ask for is on the starting a business page.

Ask about your case

If you’re weighing a ROBS, an SBA loan, or both, send your question below. A person reads it and replies by email. We don’t pass it to any provider or lender, and we aren’t one. When you talk to providers, ask who signs the plan documents as fiduciary, what the monthly fee includes, and how the stock is valued each year.