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Introduction: Using retirement funds to start or buy a business through a Rollover as Business Start-up (ROBS) arrangement is an increasingly popular financing strategy for entrepreneurs. ROBS allows business owners to tap into their 401(k) or IRA savings tax-free and penalty-free to fund a new venture – but it comes with complex rules and risks. In this in-depth guide, we explain exactly what ROBS is and how it works, why obtaining a professional Business Valuation is critical in any ROBS transaction, and we provide a comparative analysis of major U.S. ROBS providers (including Guidant, Benetrends, FranFund, Tenet Financial Group, and others). We’ll delve into key IRS and Department of Labor regulations, industry best practices, and the compliance requirements that can make or break a ROBS-funded business. Throughout, we maintain a professional, authoritative tone geared toward business owners and CPAs, emphasizing the value of SimplyBusinessValuation.com for meeting all your ROBS-related Business Valuation needs. The article concludes with a helpful glossary of terms and a detailed FAQ section addressing common concerns. Let’s dive in.
ROBS Defined: Rollovers as Business Start-ups (ROBS) is a financing method that allows prospective business owners to use their tax-deferred retirement funds (such as a 401(k) or traditional IRA) to invest in a new business or franchise without taking a taxable distribution or early withdrawal penaltyirs.govirs.gov. In a typical ROBS transaction, the entrepreneur’s retirement account funds are rolled over into a newly created company’s qualified retirement plan, which then uses those funds to purchase stock (shares) in the new companyirs.govirs.gov. This provides the business with equity capital, financed by the owner’s own retirement savings, instead of a loan.
How a ROBS is Set Up: The ROBS process involves several sequential steps to comply with tax rulesirs.govirs.gov:
Establish a C Corporation: The business owner must form a new C-corporation (ROBS cannot be done with an LLC or S-corp). The C-corp structure is required because only C-corps can issue stock that a retirement plan is permitted to invest insimplybusinessvaluation.comsimplybusinessvaluation.com. Initially, this corporation may be just a shell with no assets or operations.
Create a New 401(k) Plan: The new C-corp adopts a qualified 401(k) or profit-sharing plan for its employees (at the outset, the entrepreneur is often the sole employee and plan participant)simplybusinessvaluation.com. The plan’s documents include provisions allowing investment in employer stock (often up to 100% of the account)irs.govirs.gov. In many cases, promoters use a pre-approved plan document with a custom amendment to permit investing the entire rollover account in the company’s stockirs.govirs.gov.
Rollover of Retirement Funds: The entrepreneur rolls over funds from their existing retirement account into the new company’s 401(k) plan. This is done as a direct trustee-to-trustee transfer or rollover, so it remains tax-deferred (a Form 1099-R is issued noting it as a rollover, not a taxable distribution)irs.govsimplybusinessvaluation.com. All the transferred funds are now held in the new 401(k) plan’s account (often in a separate rollover sub-account for the owner).
Plan Purchases Company Stock: The 401(k) plan then uses the rollover funds to buy stock in the new C-corp. In practice, the corporation issues shares to the plan in exchange for the cash. At this moment, the retirement plan becomes a shareholder (often the 100% owner) of the company, and the company receives the cash to operate or acquire an existing businesssimplybusinessvaluation.comsimplybusinessvaluation.com. Importantly, this stock purchase must be executed at a fair price (more on valuation below). After the transaction, the entrepreneur effectively controls the company as its employee and plan trustee, but the retirement plan holds the company’s stock as an asset.
Business Operations Funded: Now the corporation has the necessary capital (from the retirement plan’s investment) to start the business or buy a franchise/business. The funds can be used for any legitimate business expenses – e.g. purchasing a franchise license, equipment, inventory, hiring staff, or working capital. Unlike a loan, there are no debt payments or interest, because the money is the owner’s equity investment via the 401(k). The owner can even pay themselves a reasonable salary as an employee of the C-corp (which is expected, since they must work in the business) – this is allowed as long as the salary is for bona fide work and not an abusive transfer of plan benefitsfundmyfranchise.comfundmyfranchise.com.
ROBS in Action – An Example: Suppose Jane has $200,000 in an old 401(k). She wants to buy a franchise that requires $150,000 in startup costs. Through ROBS, Jane forms XYZ Corp (a C-corp), adopts a 401(k) plan at XYZ Corp, and rolls $150,000 of her retirement funds into the plan. The XYZ Corp 401(k) then invests $150,000 to purchase shares of XYZ Corp. XYZ Corp (the business) now has $150,000 cash from issuing shares to the plan, and the 401(k) plan owns 100% of XYZ Corp’s stock (worth $150,000). Jane uses the $150,000 in the corporate bank account to pay franchise fees, rent, equipment, etc. She draws a modest salary to run the business. Going forward, the 401(k) plan’s value is tied to the value of XYZ Corp stock. If the business grows, the stock value (and Jane’s retirement account value) grows; if it fails, her retirement account loses value.
Legality and IRS View: ROBS arrangements have been explicitly recognized by the IRS and are legal when properly executed – they are not considered a per se tax avoidance schemeirs.gov. In fact, the IRS has issued Determination Letters approving the structure of properly set-up ROBS 401(k) plans (meaning the plan documents comply with the tax code)irs.gov. However, the IRS also calls ROBS “questionable” transactions because in substance they enable one individual (the business owner) to use retirement funds for their own businessirs.gov. The concern is that if not operated in strict compliance with retirement plan rules, a ROBS can benefit only the owner and skirt the intent of tax-deferred savingsirs.govsimplybusinessvaluation.com. As we’ll explore, the IRS closely scrutinizes ROBS for any signs of disqualifying violations, such as prohibited transactions or discrimination in the plan. In short: ROBS is allowed, but you must do it right.
Benefits of ROBS: When done correctly, ROBS offers unique advantages for entrepreneurs:
Tax-Free Business Funding: Access your 401(k)/IRA money without triggering taxes or early withdrawal penalties, as long as funds go into the ROBS plan and then into the business’s stockirs.govirs.gov. This can save potentially tens of thousands in taxes compared to a normal withdrawal.
Debt-Free Startup Capital: You’re funding the business with equity from your retirement funds, so the company starts out debt-free. No loan payments means better cash flow in those critical early monthsfranfund.com.
Larger Funding Amounts: ROBS can allow much larger injections of capital than one might get from a bank loan or credit line, especially if you have substantial retirement savings. There are no credit score requirements or collateral needed, since it’s your own moneylendingtree.comlendingtree.com.
Combine with Other Financing: ROBS can be used as the down payment or equity injection required for an SBA loan or other financinglendingtree.comlendingtree.com. Many business owners use a ROBS to inject 20-30% of the project cost and borrow the rest via an SBA 7(a) loan – preserving some cash and leveraging financing.
Invest in Yourself: Rather than investing retirement funds in the stock market, ROBS lets you invest in your own business. If the business succeeds, the growth in value accrues to your retirement plan (essentially to you). Future gains on the stock will eventually be taxed as distributions in retirement, but any increase is tax-deferred until then.
However, these benefits come with significant risks and responsibilities, which we discuss next. The downside of ROBS is that you are putting your retirement savings on the line. If the business fails, you could lose a chunk of your nest egg. In fact, IRS studies found many ROBS-funded businesses do fail, leaving the owners with depleted retirement accountsirs.gov. Additionally, the complexity of ROBS means you must adhere to ongoing legal requirements and could face severe tax consequences if you slip up on compliance. Understanding those rules is critical before proceeding with a ROBS.
Using a ROBS to fund your business is not as simple as moving money around – it essentially makes you both a business owner and a fiduciary of a retirement plan. That dual role triggers a host of legal requirements under the Internal Revenue Code and ERISA (Employee Retirement Income Security Act). Here are the key compliance rules and regulatory considerations that anyone doing a ROBS must follow:
C-Corporation Requirement: The business must be structured as a C corporation. This is non-negotiable – under IRS rules, only C-corps can have their stock owned by a qualified plan in this mannersimplybusinessvaluation.comsimplybusinessvaluation.com. S-corporations are not allowed because IRA/401k plans are not eligible S-corp shareholders by law, and LLCs/partnerships don’t issue stock in the same way. The IRS explicitly describes ROBS as involving a new C-corp whose stock is purchased by the plansimplybusinessvaluation.comsimplybusinessvaluation.com.
Plan Must Benefit Employees (Not Just the Owner): The 401(k) plan set up in a ROBS must be a bona fide retirement plan for all employees of the business – it cannot be a sham plan solely benefiting the owner. This means you must follow normal 401(k) plan rules on eligibility, participation, and nondiscrimination. When you hire employees who meet the plan’s eligibility (e.g. one year of service, age 21 or older, unless the plan has immediate eligibility), you have to offer them the chance to participate in the retirement plan. You cannot amend the plan to exclude new employees or to prevent them from investing in company stock if the plan offers that featureirs.govirs.gov. Violating coverage or nondiscrimination rules by keeping the plan all to yourself is a sure way to get in trouble. The IRS has noted cases where ROBS promoters amended the plan after the stock purchase to block other participants from buying stock, which is improperirs.gov. Bottom line: the plan must be operated like a normal plan – it’s not just your personal piggy bank.
No Prohibited Transactions: Transactions between the plan and “disqualified persons” (which include the business, its owner, etc.) are normally prohibited by IRS Code §4975. A special exemption in the law allows a plan to purchase “qualifying employer securities” (i.e., stock of the employer C-corp) as long as it’s done for adequate consideration (fair market value) and the plan’s rights as a shareholder are not violated. The ROBS structure relies on this exemption. Therefore, the stock purchase must be at fair market value – this is crucial to avoid a prohibited transactionsimplybusinessvaluation.comsimplybusinessvaluation.com. If the plan pays more than fair market value for the shares (or conversely, if the owner somehow benefits by getting shares personally for cheap or other self-dealing), the IRS could deem it a prohibited transaction, disqualifying the plan. Example: If your new corporation initially had some assets or value and you have the plan pay $150,000 for stock worth only $100,000 just so you can withdraw extra cash, that’s abusive. Conversely, if you issue additional shares to yourself personally for a nominal amount after the plan funded the company, that could also be self-dealing. All ROBS transactions must be done at arm’s length fair valuesimplybusinessvaluation.com. This is one reason an independent Business Valuation is essential (more on that in the next section). Aside from the stock purchase, you also must avoid other prohibited transactions: the business cannot, for example, loan money to the plan or vice versa, nor can you use plan assets for personal uses. One subtle trap: personal guarantees on business loans – if you personally guarantee an SBA loan for the ROBS-financed business, it can be viewed as an impermissible extension of credit to the plan (since the plan’s assets – the company stock – are being leveraged by your guarantee). In a notable Tax Court case (Peek v. Commissioner, 2013), two taxpayers used a similar rollover strategy with IRAs and then personally guaranteed a business loan; the IRS successfully argued this was a prohibited transaction that disqualified their IRAssimplybusinessvaluation.com. In short, ROBS business owners should be careful about personal guarantees or transactions that entangle personal assets with the plan’s investmentsimplybusinessvaluation.com.
Qualified Plan Operation and Reporting: Once your ROBS 401(k) plan is in place, it is subject to all the normal plan administration rules. This includes adopting a compliant plan document, following contribution limits if contributions are made, issuing required notices to employees, and critically, filing annual reports. Every year, the ROBS plan must file a Form 5500 (Annual Return/Report for Employee Benefit Plan) with the IRS/Department of Labor to report the plan’s assets and participant informationirs.govirs.gov. Many ROBS owners mistakenly think they qualify for the “one-participant plan” exemption (which lets very small owner-only plans skip the 5500 if assets < $250k). This exemption does not apply to ROBS plans because the plan owns the operating company, making it effectively more than just an “individual and spouse” scenarioirs.govsimplybusinessvaluation.com. The IRS has explicitly stated that ROBS plans must file Form 5500 annually regardless of sizeirs.govsimplybusinessvaluation.com. Failing to file required returns or to maintain proper records is a major compliance red flagirs.govirs.gov. Additionally, the corporation must file its own tax returns (Form 1120) as a regular entity – some ROBS users erroneously neglected that as well, thinking no activity meant no return, which was cited in IRS findingsirs.govirs.gov.
Fiduciary Duty and Ongoing Compliance: As the plan’s sponsor and typically a trustee, the owner assumes fiduciary responsibility to operate the plan in the best interest of participants (including any future employees in the plan). You need to ensure that the plan’s investment (your company stock) is prudent and the plan complies with ERISA/IRS rules each year. This means keeping up with any plan amendments required by law changes, covering any new employees, and making sure the plan pays only reasonable expenses. For example, promoter or provider fees should be reasonable and typically paid by the corporation (not out of plan assets, unless properly structured), to avoid using plan funds improperlyirs.govirs.gov. The IRS’s ROBS Project noted that high recurring promoter fees were one factor in some ROBS business failuresirs.gov – so business owners should be mindful of fees and ensure they’re getting value from any ROBS provider’s ongoing services.
IRS Determination Letter (Optional): Many ROBS providers will have the new plan submit an application to the IRS for a Determination Letter (DL) on the qualified status of the plan. A determination letter, if granted, is basically the IRS’s stamp that the plan document (as written) meets all tax code requirementsirs.gov. While obtaining a DL is a good practice for assurance, note that it does not protect you if the plan is operated incorrectlyirs.gov. The IRS warns that a DL doesn’t shield against operational failures or discriminatory actionsirs.gov. It’s still on you to run the plan properly. However, having a current DL can be useful to show auditors that the plan’s structure was reviewed by the IRS.
To summarize, ROBS is heavily scrutinized by the IRS and DOL because it pushes the envelope of retirement plan use. The IRS launched a compliance project in 2009 specifically to study ROBS plans, and found frequent issues like owners not understanding they had to file 5500s, or plans being operated in a way that only benefited the ownerirs.govirs.gov. They also observed that many ROBS-funded businesses struggle or fail, which raises the stakes for owners considering this pathirs.gov. All of this means that compliance is not a one-time task – it’s an ongoing commitment for as long as the plan and business exist. Next, we’ll discuss one of the most critical compliance steps in a ROBS: the valuation of the business’s stock.
One of the cornerstone requirements of a successful ROBS is a proper Business Valuation. In fact, valuation is so crucial that the IRS has explicitly flagged “valuation of assets” as a potential problem area in ROBS plansirs.gov. Here’s why a thorough, independent valuation of your company is essential in a ROBS:
1. Ensuring Fair Market Value (FMV) for the Stock Purchase: The moment your 401(k) plan buys stock in your new corporation, that transaction must occur at fair market value to satisfy the exemption for purchasing employer securitiessimplybusinessvaluation.comsimplybusinessvaluation.com. In legal terms, the plan must receive “adequate consideration” for the funds it’s investing – i.e., an equivalent value in stock. If the price per share is inflated beyond the company’s true value, the plan is overpaying for stock to the benefit of the company/owner, which could be seen as an illegal prohibited transactionsimplybusinessvaluation.com. Conversely, if the plan somehow paid less than fair value and the owner got additional shares cheaply, that’s also abusive.
In a typical pure startup, the fair market value of the company at inception is roughly equal to the cash injected (since the company initially has no other assets or operations). For example, issuing $150k of stock for $150k cash is straightforward. However, if your ROBS is used to acquire an existing business or franchise, or the corporation has other assets, determining FMV is more complex. You cannot arbitrarily decide “my company is worth exactly the amount of my 401k rollover.” The IRS has observed that many ROBS plans simply value the stock equal to the invested funds without any independent analysissimplybusinessvaluation.comsimplybusinessvaluation.com. This cookie-cutter approach is risky. A professional valuation provides a defensible basis for the stock price, documenting how the value was determined using accepted valuation methods. That way, if the IRS ever questions the transaction, you can show the plan paid fair market value as supported by an appraisal. Tip: The valuation should be conducted prior to or at the time of the stock issuance, so that you know how many shares to issue for the amount of cash, or vice versa.
2. Avoiding Prohibited Transaction Pitfalls: As noted, a bad valuation can lead directly to a prohibited transaction under IRC §4975. If the IRS finds the plan’s purchase was not for adequate consideration, they can disqualify the plan from day one – meaning the entire rollover becomes a taxable distribution (with penalties) for the owner. This nightmare scenario has played out in analogous cases. For instance, in Ellis v. Commissioner (2015), an entrepreneur rolled an IRA into a corporation and had that corporation pay him a salary; the Tax Court held that arrangement violated prohibited transaction rules, disqualifying the IRAsimplybusinessvaluation.com. In the ROBS context, paying excessive compensation or manipulating stock value can trigger similar issues. Having a solid valuation at the start helps ensure the plan is not giving the owner any unintended enrichment beyond what’s justified by the business’s true valuesimplybusinessvaluation.com. It sets an objective foundation that all parties (the plan and the corporation) are transacting fairly.
3. Required Annual Valuation of Plan Assets: Under both IRS and DOL regulations, qualified plans must value their assets at least once per year at fair market valuesimplybusinessvaluation.com. This is not unique to ROBS – it applies to all plans – but it’s especially important here because the main asset in the plan is the stock of a private company (your business). Each year when you file the Form 5500, you must report the plan’s assets (including the value of the employer stock) as of year-end. The law (ERISA) requires that for closely-held stock, the plan fiduciary must determine its fair market value in good faith, and the IRS expects an objective basis for that valuation (often an independent appraisal)simplybusinessvaluation.com. Therefore, ROBS isn’t a one-and-done valuation – you will likely need updated valuations annually or whenever a major event happens (issuing new shares, a big change in company fortunes, or if you plan to sell the business). An initial valuation at startup provides the baseline, and subsequent valuations track the company’s progress. For example, if your business grows rapidly in two years, your 401(k) account could double in value – but you need an appraisal to support that increase in the stock’s value on the books. Conversely, if business performance declines, the stock value might drop – which also must be reflected. Accurate annual valuations protect you in multiple ways: they ensure you pay the right amount of taxes if the business is sold, they fulfill your fiduciary duty to plan participants (no one’s 401k statement is overstated), and they catch problems early. The IRS or DOL could penalize a plan that just carries the stock at its original cost forever instead of updating to fair market value.
4. Audit and Compliance Confidence: If your ROBS plan is ever audited by the IRS or DOL, one of the first things agents will ask for is documentation of the stock purchase and the valuation supporting itirs.govsimplybusinessvaluation.com. Having a comprehensive valuation report prepared by a qualified appraiser sends a strong signal that you took compliance seriously. It’s far better to show an auditor a 50-page professional appraisal than to admit you guessed the value or used a one-page “rule of thumb.” In fact, the IRS has explicitly criticized “one-page valuations” as inadequate for ROBSsimplybusinessvaluation.com. Best practice is to obtain a detailed valuation report at the time of the rollover and maintain valuation records for each year. This level of diligence can even deter deeper scrutiny – if everything is well-documented and by the book, the audit might close with no changes. On the flip side, lacking a valuation or using a dubious method is an invitation for the IRS to dig deeper and potentially disqualify the plan.
5. Facilitating Exits and Transitions: Eventually, you’ll need an exit strategy from the ROBS. This could involve the company buying back the stock from the 401(k) plan, or selling the business to an outside buyer (where the plan gets its share of proceeds), or perhaps taking the company public. All these scenarios require knowing the value of the company. For instance, if you want to buy back the shares from your plan (so that you personally own the company outright), you must pay the plan fair market value for those shares – again requiring a solid valuation at that time. Similarly, if a third-party buys the company, an appraisal will determine how much of the sale price goes to the plan versus to any other shareholders. Thus, valuations not only keep you compliant during the life of the ROBS, but also ensure a fair outcome when unwinding the arrangement.
Bottom line: “What’s my business worth?” is a question you must answer objectively in a ROBS, both at inception and on an ongoing basissimplybusinessvaluation.com. The IRS and DOL expect it, and it protects you and your retirement funds. Many ROBS providers include a Business Valuation as part of their setup package, or at least strongly encourage getting one. Engaging an independent valuation specialist (like a certified appraiser) is a small price to pay compared to the potential costs of non-compliance. In the next section, we will review the major ROBS providers and how they compare – including in the area of ensuring proper valuations and compliance.
If you decide to pursue a ROBS, choosing the right ROBS provider or third-party administrator (TPA) is extremely important. A good provider will guide you through the setup, ensure all legal steps are taken, and handle the complex plan administration going forward. Below, we analyze the major U.S.-based ROBS providers and compare their pricing, services, compliance track records, customer support, credentials, and reputation. All the providers discussed are experienced in ROBS 401(k) business financing; however, there are differences that business owners and CPAs should note. (Note: All pricing is current as of 2024-2025. Always verify with the provider for up-to-date fees.)
Background: Guidant Financial is often considered the market leader in ROBS 401(k) business financing (which they brand as “401(k) Business Financing”). Founded in 2003, Guidant has helped over 30,000 entrepreneurs fund businesses via ROBS according to industry reports. They are known for having a large volume of transactions annually (they handle hundreds of rollovers each year)guidantfinancial.com and a highly systematized process. Guidant has positioned itself as a full-service provider with a focus on compliance and legal safeguards.
Pricing: Guidant’s standard fees are $4,995 for the initial setup (with a 10% discount for veterans) and a monthly administration fee around $139–$149 thereafterfitsmallbusiness.comlendingtree.com. In practice, that monthly fee is $149 (or slightly lower with multi-year discounts), covering ongoing plan maintenance. This pricing is on the higher end, but Guidant justifies it with comprehensive service. Included services: Guidant’s setup fee covers incorporation of the C-corp, establishing the 401(k) plan, Business Valuation services, plan document preparation, and guiding the rollover processfitsmallbusiness.com. The monthly fee covers an in-house team that handles plan administration, annual compliance review, Form 5500 filing, and even an annual meeting with an independent ERISA attorneyfitsmallbusiness.com. Guidant clients also get access to both internal and external legal counsel if neededfitsmallbusiness.com.
Compliance and Audit Protection: Guidant Financial is well-known for its strong compliance track record. The company claims to have a “spotless audit record” – no ROBS plan set up by Guidant has ever been disqualified or resulted in a taxable eventguidantfinancial.com. While some of their clients’ plans have been audited by IRS/DOL (as is naturally expected over time), Guidant points out that all have passed without issue. A signature offering is their full audit protection guarantee: if a client’s ROBS plan is audited, Guidant will cover all legal representation costs through the full audit cyclefitsmallbusiness.comfitsmallbusiness.com. This guarantee can save a client tens of thousands in attorney fees if an audit happens. Guidant also offers a money-back satisfaction guarantee on its servicesfitsmallbusiness.com. Their internal processes (they often proactively review plans each year) and inclusion of valuations and legal check-ups show an emphasis on “getting it right.” Guidant explicitly files all required IRS forms on behalf of clients to keep plans in complianceguidantfinancial.com.
Customer Service and Credentials: Guidant has a large staff of trained consultants, retirement plan experts, and in-house attorneys. They pride themselves on customer education (they publish guides and have a knowledgeable sales process without heavy pressure). Reviews typically cite Guidant’s professionalism and thoroughness, albeit at a premium price. Guidant has received awards in the franchise and small business space and is often recommended by franchise brokers. The company’s longevity (20+ years) and scale provide credibility. If you want a high level of hand-holding and are willing to pay for more support, Guidant is frequently the “best overall” choicefitsmallbusiness.comfitsmallbusiness.com. Clients get a long-term partner for the life of the plan.
Notable: Guidant’s plan includes Business Valuation at setup (they will assist in arranging a proper valuation, which is a significant value-add as discussed)fitsmallbusiness.com. They also have robust legal support, including an independent ERISA attorney review annuallyfitsmallbusiness.com. Guidant’s funding timeline averages about 3 weeks from start to finishfitsmallbusiness.com, a bit slower than some, but they prioritize doing each step correctly. Overall, Guidant Financial is ideal for entrepreneurs who want maximum assurance and are willing to pay a bit more for it.
Background: Benetrends Financial is the original pioneer of the ROBS concept. In 1983, Benetrends’ founder Len Fischer developed what they trademarked as the “Rainmaker Plan®,” making Benetrends the first to formally offer 401(k) rollovers for small business fundingbenetrends.com. With over 40 years in operation, Benetrends has helped thousands of entrepreneurs fund franchises and startups. They are highly regarded in the franchising community and have long-standing credibility. Many consider Benetrends and Guidant as the two heavyweight veterans in this space.
Pricing: Benetrends’ pricing for their standard Rainmaker Plan is $4,995 setup and $155 per month for ongoing administration (which works out to $1,860/year)benetrends.com. They occasionally offer discounts for veterans or special promotions. They also offer a Roth 401(k) variant of the plan for a higher fee ($9,995 setup for “Rainmaker Roth” plan) for those who specifically want to incorporate Roth contributions. The fees include similar services as Guidant: incorporation, plan creation, rollover assistance, and ongoing compliance/TPA services. Benetrends emphasizes that their plans include “all administrative, filing, and insurance costs plus unlimited certified and legal services” in those feesbenetrends.combenetrends.com. In other words, their monthly fee covers full plan administration with no hidden extra charges for things like plan amendments or government filings.
Compliance and Track Record: Benetrends highlights an exceptional compliance record. According to Benetrends, in over 40 years they have never had a plan disqualified by the IRSbenetrends.com. They back this claim with their “Audit Shield” protection as part of the Rainmaker Guaranteebenetrends.combenetrends.com. If a client’s plan is audited, Benetrends provides support and covers the costs to address any IRS/DOL inquiries (similar to Guidant’s audit defense). Benetrends reports an extremely low audit incidence – their CEO has noted an audit rate of only ~0.5% of planslendingtree.com. In practice, that means virtually none of their clients have faced adverse outcomes. This spotless record is a strong vote of confidence. Benetrends also keeps everything in-house: they have an in-house team of certified plan professionals and ERISA experts (no outsourcing)benetrends.combenetrends.com, which helps maintain quality control.
Services and Differentiators: Benetrends can often move faster than competitors – they tout funding in as little as 10 business days for a ROBS planbenetrends.comlendingtree.com, which is among the fastest in the industry. This speed can be advantageous for clients who have a franchise opening or business purchase with a tight timeline. They achieve this via well-honed processes and perhaps a bit of overlap in steps (for example, expediting corporation filing and parallel processing of the plan setup). Benetrends also offers some unique perks: they mention additional plan design options, customizations for those who might want profit-sharing or defined benefit add-ons in the futurebenetrends.com, and they recently introduced a product called “ROBS+” which seems to allow continued retirement investing while running the ROBS-funded businessbenetrends.com.
Customer service is often described as personal. Benetrends often assigns a dedicated consultant to guide each client. Their long tenure means many CPA firms and attorneys have experience with Benetrends plans, which can smooth professional cooperation. They also assist with other funding needs – Benetrends is a one-stop shop for SBA loans, conventional loans, etc., if clients need combo fundinglendingtree.com.
Reputation: Benetrends is frequently recommended by franchise brokers and has strong endorsements. They do have a few complaints (as any large provider would) – e.g., some users note the exit process (when closing or selling the business) can be slow or complicated with themyelp.com. However, the overwhelming feedback is positive regarding their expertise. They pride themselves on “quality over quantity,” implying they ensure each plan is done correctly rather than chasing volumefundmyfranchise.com. If you value decades of experience and a proven track record, Benetrends is a top choice. They are often seen as the authority on ROBS, having literally innovated it.
Background: FranFund (short for “Franchise Fund”) is a leading provider particularly popular in the franchise community. Founded in the mid-2000s, FranFund offers a variety of franchise funding solutions, including ROBS (which they market as the FranPlan®). They have become a major player by partnering with franchisors and being very franchisee-friendly. FranFund emphasizes a consultative approach – they help entrepreneurs evaluate different funding options and often combine ROBS with SBA loans for a complete funding package.
Pricing: FranFund is quite transparent with pricing. Their ROBS 401(k) rollout (FranPlan®) costs $4,795 one-time setup and $130 per month for administration thereafterlendingtree.comlendingtree.com. This is slightly lower than Guidant/Benetrends in upfront cost and monthly fee. The monthly $130 covers the ongoing TPA work required to keep the plan compliant (plan updates, testing, 5500 filing, etc.). FranFund also uniquely offers a “SafetyNet” program – essentially, they allow you to start the rollover process (move funds into a secure IRA) with no obligation, so that if you change your mind or your business plans fall through, you can easily roll the money back or use it elsewhere without having paid feesfranfund.com. They only charge once you move forward with the corporation and plan setup. This no-risk approach is appreciated by clients who are still finalizing their franchise or business deals.
Services: FranFund’s package includes all the typical ROBS setup tasks: incorporation (with expedited state filing if needed), EIN, plan adoption, and coordination of the rollover. They also provide unlimited consultations during setupfranfund.com, meaning their specialists will guide you and answer all questions. Post-funding, FranFund has an in-house Third Party Administration (TPA) team that takes over to manage the plan annuallyfranfund.com. Notably, they include annual plan compliance testing, 5500 preparation, 1099-R issuance, contribution tracking, and “annual fair market value support” as part of the $130/month feefranfund.com. “Annual fair market value support” suggests FranFund will assist in obtaining or formulating the yearly valuation for the business stock (though it’s wise to get an independent appraisal, FranFund likely gives guidance or even contacts for appraisers). They also do annual plan review meetings with clients to ensure everything is in order.
Compliance/Audit History: FranFund reports that its audit rate is less than 1%, and importantly, they state they have had no plan disqualifications or negative outcomes in any auditsfranfund.comfranfund.com. This indicates a strong compliance record comparable to the bigger providers. They also provide audit assistance as needed. FranFund’s documentation and process are designed to meet all IRS/DOL guidelines (they cite that their process follows what was set out in ERISA and IRS regulations in 1974)franfund.com. For additional assurance, FranFund’s plan administration includes audit support if an inquiry comes upfranfund.com. Many franchise brands have worked with FranFund extensively, which speaks to their reliability (franchisors likely wouldn’t keep referring if problems were occurring).
Customer Experience: FranFund is often lauded for speed and efficiency. They can sometimes fund a plan in as quick as 10 business days (comparable to Benetrends’ fast timeline)lendingtree.comlendingtree.com. They have a reputation for responsiveness – each client typically has a dedicated funding consultant. Because FranFund also brokers SBA loans and other funding, they can provide an integrated solution (for example, using the ROBS as equity injection for an SBA loan, which they help arrange). Their “one-two punch” of ROBS plus SBA loan packaging is a strong suit. FranFund is known for being franchisor-approved for many franchise systems, meaning they are already vetted and on franchisors’ radar as a credible funding source.
Credentials: FranFund’s team includes experienced professionals in both lending and retirement plan arenas. They often speak at franchise industry events and have partnerships with the International Franchise Association. FranFund also makes it easy for potential clients by offering a free consultation and even a pre-qualification tool.
In summary, FranFund is an excellent option, especially if you are buying a franchise or want a slightly more affordable fee structure without sacrificing service. They combine a strong compliance record with franchise expertise and a customer-friendly process.
Background: Tenet Financial Group is a respected ROBS provider that often works closely with franchise consultants and small business owners. Founded by Derrick Skogsberg (who actually used a ROBS himself to start the company), Tenet has been around since the early 2000s and has a team with “nearly 80 decades of combined funding experience” (as humorously stated on one partner site)fundmyfranchise.com. Tenet positions itself as focusing on quality over quantity – they emphasize personalized service, integrity, and doing things right, rather than being the biggest playerfundmyfranchise.com. They serve as a Third-Party Administrator (TPA) for the plans they set up and often partner with regional franchise funding firms (like “Fund My Franchise”) to reach clients.
Pricing: Tenet Financial Group’s fees are in line with industry standard: typically $4,995 setup fee and a $145/month administration fee (which is $1,740 annually)fundmyfranchise.com. These figures were confirmed via a Q&A on a partner site and match what one would expect. The $4,995 covers the full plan design and installation: incorporating the C-corp, adopting the 401k/profit-sharing plan, facilitating the rollover, and ensuring the structure is compliant. The monthly $145 covers ongoing plan administration, which begins after the plan is effective and fundedfundmyfranchise.com. Tenet’s fees include what you’d need for compliance; for example, they either have in-house valuation services or partner with valuation firms (they actually link to a valuation service on their site)tenetfinancialgroup.com, indicating they ensure clients get the required appraisal at setup. Tenet does not charge any fee until the plan is set up; they even provide a free initial consultation and a funding calculator to see if ROBS is viable for youtenetfinancialgroup.com.
Compliance and Audit Support: Tenet Financial prides itself on a perfect compliance record similar to its peers. According to Tenet, since the IRS established formal ROBS guidelines in 2008, no plan set up by Tenet has ever had an IRS inquiry escalate to a full auditfundmyfranchise.comfundmyfranchise.com. This is a noteworthy statistic – essentially, any IRS compliance checks were resolved satisfactorily at an early stage. And if a plan were audited, Tenet commits to assist the client through the audit until completionfundmyfranchise.com. In their client materials, Tenet highlights that they maintain all the required plan records and would help accurately respond to any IRS questionsfundmyfranchise.com. This hands-on support gives clients peace of mind. Tenet’s internal processes (they run each plan through legal review, etc.) are designed to catch issues. The founder’s personal experience (“the first 401(k) plan he ever created was his own [ROBS] plan”fundmyfranchise.com) may contribute to a culture of diligence, as he’s been on the client side of it.
Service and Philosophy: Tenet often emphasizes values like sincerity, honesty, and efficiency in their dealingsfundmyfranchise.com. They often work closely with CPA firms and encourage clients to involve their personal CPA in the processfundmyfranchise.com. In fact, Tenet advises consulting with your CPA to ensure your opening balance sheets and ongoing bookkeeping align with the ROBS plan requirementsfundmyfranchise.com – this collaborative approach ensures all advisors are on the same page. Tenet’s team includes experienced plan administrators and they act as the TPA for the life of the plan (they don’t outsource plan admin to another firm). Customers often work with the same few points of contact, which adds a personal touch.
Tenet might not be as large as Guidant or Benetrends, but it has a strong reputation especially in franchising circles. They often get referrals through franchise consultants who trust Tenet’s consistency. The funding timeline with Tenet is roughly 3–4 weeks from start to finish, which is standardfundmyfranchise.com. They can sometimes expedite if needed, but they won’t cut corners just to claim a 10-day turnaround.
Credentials: Tenet is accredited with the Better Business Bureau (BBB) and maintains an A+ rating. They also produce educational content (blogs, podcasts) about ROBS and business funding, indicating expertise. For instance, their blog and podcast address common ROBS questions and legalities, helping demystify the processtenetfinancialgroup.comtenetfinancialgroup.com.
Summary: Tenet Financial Group is a solid choice for those who value a balance of personalized service and deep expertise. Their track record shows they take compliance seriously. Pricing is standard, and they often win clients who want to feel “not like a number” but rather a valued partner. If you engage Tenet, you can expect hands-on guidance and a commitment to standing by you if any regulatory questions arise.
Background: Pango Financial is a newer entrant (founded mid-2010s) that has quickly gained recognition for offering affordable ROBS solutions. They market their ROBS package under the name “DreamSpark® plan.” Pango’s niche is combining technology and low costs to appeal to price-sensitive entrepreneurs. Despite being newer, they have won awards (like Entrepreneur Magazine mentions) for their financial products.
Pricing: Pango Financial stands out for slightly lower fees and flexibility on minimum rollover amounts. They charge $4,695 for setup (notably, a 15% discount for veterans and first responders, which can lower this to around $3,990) and $129 per month administration feefitsmallbusiness.comfitsmallbusiness.com. These fees make Pango one of the more affordable full-service ROBS providers. In addition, Pango will consider ROBS plans for rollovers as low as ~$30,000fitsmallbusiness.com (most big providers prefer $50k+ rollover because below that the fees may not be “worth it”). Pango’s willingness to go down to $30k means more people with moderate retirement balances can use ROBS – though they still recommend you carefully weigh fees vs. amount investedfitsmallbusiness.com.
Services: The DreamSpark plan fee covers the standard deliverables: C-corp formation, Business Valuation assistance, 401(k) plan setup, rollover facilitation, and ongoing recordkeeping. Pango provides an online portal for account management and a relatively self-service friendly model (hence the “tech-forward” reputation). They do include internal and external legal support if needed during operations, and they have a money-back guarantee as well if the plan is not completed to satisfactionfitsmallbusiness.com. One differentiator: Pango’s audit protection is a bit more limited than Guidant or Benetrends. They do offer compliance support in an audit, but primarily by assisting your own accountant or CPA to navigate itfitsmallbusiness.com. They don’t automatically cover external legal fees, which is one reason their costs are lower. Essentially, Pango will guide you, but they may not foot the entire legal bill if you needed a tax attorney – something to clarify with them.
Compliance and Reputation: Pango has a good, though shorter, track record. They haven’t reported any plan failures or disqualifications in their years of operation. They are likely using similar plan documents and strategies as others. Because they cater to simpler deals (they mention DreamSpark is ideal for “simple rollover transactions”fitsmallbusiness.com), they may not have as many complex cases under their belt. Still, customer reviews often cite that Pango’s team is knowledgeable and responsive. The lower cost does not mean they are fly-by-night; it appears to be a leaner business model (they might outsource some plan administration to a partner TPA or use automation to reduce labor). Pango’s CEO is a veteran of the financial industry who saw a gap for a more budget-friendly ROBS solution.
Who is Pango best for? Likely for entrepreneurs who have smaller retirement balances (under $50k) or relatively straightforward situations and are comfortable with a slightly more DIY approach to ongoing maintenance in exchange for lower fees. Pango’s DIY element: after setup, they give you an “Instructional guide and kit” for keeping the plan compliantfitsmallbusiness.com. You can always call them for support, but they enable clients to handle routine tasks if they wish (thus the $0 recurring fee option described below). If you’re financially savvy or have a strong CPA on your side, Pango can work well and save cost. If you know you’ll need a lot of hand-holding, one of the bigger providers might be preferable.
Pango also partners with SBA lenders by providing documentation that lenders need for ROBS-funded deals (they have content on using ROBS for SBA equity injectionffcfc.com, indicating they understand that process). All in all, Pango Financial offers a compelling value, especially for simple, lower-budget ROBS setups that still require full legal compliance but not necessarily premium extras.
Background: MySolo401k Financial (sometimes styled as My Solo 401k) is a smaller boutique firm that specializes in retirement plan solutions for self-employed individuals, including self-directed 401(k)s and ROBS arrangements. It is led by a compliance expert who has been active in the industry for years (Mark Nolan). MySolo401k is known for highly competitive pricing and deep expertise, but it’s a lean operation compared to the big players.
Pricing: MySolo401k arguably offers the lowest cost ROBS setup among full-service providers. Their fee is only $3,000 for the initial setupfitsmallbusiness.com – substantially cheaper than the ~$5k others charge. Additionally, the first year of plan administration is free, and then they charge a flat $899 annually (approximately $75 per month) from year two onwardfitsmallbusiness.com. That annual fee covers up to 10 plan participants (which is more than enough for most small businesses) and they charge a small extra $75/year for each additional participant beyond 10fitsmallbusiness.com. This pricing model is very attractive for cost-conscious entrepreneurs. Essentially, over 5 years, MySolo401k’s total costs could be thousands less than the larger firms.
Services and Approach: MySolo401k provides all the necessary components: they assist with forming the C-Corp, establishing the 401k/profit-sharing plan, preparing plan documents, and guiding the rollover. They also handle the required IRS filings (5500, etc.) each year as part of the annual fee, and provide plan document updates as laws change. Where MySolo401k might differ is in level of service – being a smaller firm, they don’t have a large staff of attorneys on payroll. They do, however, offer direct access to the founder and plan experts, so you get very knowledgeable people, just not a lot of layers of support staff.
MySolo401k’s website and resources are very educational. They maintain FAQs, comparison pages (even comparing themselves to Guidant/Benetrends etc., highlighting their lower cost)mysolo401k.net, and they appear quite transparent. One limitation: Audit/legal support is limited – at such low fees, they likely do not cover outside legal counsel if an audit arises. They will guide you through responding to IRS inquiries (they have blog posts about what to do in an audit), but you might have to hire an ERISA attorney separately if it got serious. That said, there’s no indication many of their clients have faced issues.
Compliance: MySolo401k is run by compliance professionals, so they understand the rules thoroughly. They haven’t publicly touted an audit statistic, but given the small size, likely few of their plans have been audited. They emphasize doing things by the book, as their reputation hinges on it. One nice aspect: Because they also focus on solo 401k plans for self-directed investors, they have strong knowledge of the retirement plan regulations in general. This crossover expertise means they’re very detail-oriented.
Ideal Client: MySolo401k Financial is best for those who want the lowest cost option but are comfortable with a more self-driven process. If you are working with a tight budget or your rollover amount is just barely enough to justify a ROBS, this firm can make the difference. They’re also good for people who like to be very involved in the process and want to understand every detail (as they will happily educate you). However, if you prefer having a big firm’s backing or fear dealing with an audit without a large legal team, you might weigh that into your decision.
In sum, MySolo401k Financial offers budget ROBS with competent guidance. They prove that the ROBS setup doesn’t have to cost $5k – but you trade off some bells and whistles. Their clients often praise the personal attention and considerable savings.
Background: IRA Financial Group is a company known primarily for self-directed IRAs and 401(k)s, but they also offer ROBS 401(k) setup services. They have a national presence and have been featured for innovative retirement solutions. Their ROBS offering is part of a broader suite of services for people who want to use retirement funds in non-traditional ways (like real estate IRAs, solo 401ks, etc.).
Pricing: IRA Financial Group advertises ROBS (which they sometimes call the IRA/401(k) Business Financing plan) at around $3,500 setup fee and $100 per month for maintenancefitsmallbusiness.com. This pricing undercuts most of the big players, making them one of the more affordable options as well. They often run promotions or package deals, and interestingly, sometimes include added perks: for example, one source noted that IRA Financial’s ROBS clients get a free first-year HSA or Coverdell account (a $990 value) – indicating they cross-sell other products at a discountfitsmallbusiness.com. The $100/month covers basic plan administration and support.
Services: IRA Financial’s service includes setting up the C-corp and new 401(k) plan, assisting with the rollover, and providing compliance support. They highlight that their staff attorneys and CPAs will ensure the plan is properly structured and compliant with IRS and ERISA rules. They might not have the same hand-holding structure as Guidant or FranFund, but they do provide educational content and phone/email support. One unique angle: IRA Financial is very tech-forward – they have a mobile app for their self-directed IRA platform. While ROBS is more involved, their tech competency suggests efficient processes. They also mention helping clients with securing the IRS start-up tax credit (there is a credit of up to $5,000 for starting a new retirement plan, which ROBS plan qualifies for) and other tax optimizationsfitsmallbusiness.com.
Audit Protection: IRA Financial Group does say they offer audit support and audit guarantees (likely meaning if their structure fails, they might compensate). One listing noted they provide an IRS audit guarantee includedfitsmallbusiness.com. It’s worth confirming details, but presumably they stand by their plan’s compliance and will assist if questions arise. Because they operate in the self-directed retirement industry which is heavily compliance-oriented, they have in-house counsel who know this territory well.
Reputation: IRA Financial is a bit more of a broad financial services firm rather than solely focused on ROBS. They have thousands of clients in various retirement structures. In 2022, they made news due to a crypto IRA hacking incident (unrelated to ROBS, but it tested their customer service). Overall, they are considered knowledgeable, though perhaps not as specialized in franchising as Guidant/Benetrends. If your CPA or advisor is more comfortable with a firm that knows IRAs/401ks in general, IRA Financial fits that bill.
Customer Profile: If you’re a savvy investor type who might also be considering self-directed IRAs or other creative retirement uses, IRA Financial Group can be a one-stop shop. Their ROBS product will appeal to those who appreciate some cost savings but still want a known national firm. With their $3,500 setup, they are close to the low-cost spectrum. Some clients mention that support can be a bit less “high-touch” (they expect you to utilize their knowledge base and come prepared with questions), but when engaged, their experts are helpful. In essence, IRA Financial is a cost-effective, competent provider that leverages its broader retirement industry expertise for ROBS clients.
Background: CatchFire Funding is a boutique ROBS provider founded by a former executive of Guidant Financial. CatchFire is based in Colorado and markets itself as the “401k Business Funding Experts.” They tend to focus on delivering a personalized experience and are known for very fast turnaround times. CatchFire often caters to clients who want a more entrepreneurial feel from their provider, sometimes winning business from those who prefer not to go with the largest companies.
Pricing: CatchFire doesn’t list fees publicly, but according to third-party sources, their costs are roughly just under $5,000 for the setup and under $1,000 per year for ongoing feeslendingtree.comlendingtree.com. For example, it’s been mentioned that their ongoing fees are in the ~$800/year range (which might be around $70/month). This positions CatchFire as slightly cheaper annually than Guidant/Benetrends while about the same upfront. They also advertise a unique 60-day process guarantee: if anything fails in the process within the first 60 days (like if the rollover or setup can’t be completed for some reason), the client isn’t liable for expenseslendingtree.com. This essentially is a safety net – you won’t be stuck with costs if the ROBS doesn’t go through due to unforeseen issues.
Speed: One of CatchFire’s selling points is speed. They claim to be known for rapid execution – some anecdotal discussions (e.g., on forums) mention that CatchFire can sometimes fund a plan in under 2 weeks if all goes smoothlybiggerpockets.com. Their smaller size perhaps allows them to expedite filings and focus on one client at a time intensively.
Services and Support: CatchFire provides all standard services: they’ll incorporate the entity, set up the plan, manage the rollover, and provide plan admin. They also include an IRS and DOL audit guarantee, similar to others, meaning they will stand by you in an auditlendingtree.com. Given the founder’s background, they structure their plan administration much like Guidant did in its earlier days – a proven formula. CatchFire might outsource some component (like using a law firm for plan documents), but the client experience is seamless. They have a team of funding consultants who work closely with clients (likely a lower client-to-consultant ratio than bigger firms, which means more personal attention).
Reputation: CatchFire gets a lot of business from referrals and has very positive testimonials. Clients often mention that they felt like they were working with a partner who genuinely cared. The trade-off of a smaller firm is fewer layers of review – but that doesn’t mean less expertise. In fact, the technical know-how at CatchFire is high, given the leadership’s long experience. There’s also a sense of continuity – you might be dealing with the same expert throughout the process, whereas at a bigger provider you talk to a salesperson, then a setup team member, then a support team, etc.
Who might choose CatchFire? Possibly someone who likes the idea of a boutique firm, or perhaps got a quote from Guidant/Benetrends and decided to compare alternatives that could provide more hands-on service at slightly lower recurring cost. Also, if an entrepreneur is in a hurry to fund a deal (say they found an acquisition and need to close fast), CatchFire’s ability to expedite might be decisive. Their website often emphasizes “you’re not just a number”—appealing to those wary of being lost in a corporate machine.
In conclusion, CatchFire Funding is a strong contender that combines the experience of a big firm with the feel of a personal consultant. Their pricing and guarantees are competitive, and they have carved out a loyal client base.
Beyond the ones detailed above, a few other U.S.-based ROBS providers deserve brief mention:
Leading Retirement Solutions (LRS): A Seattle-based, woman-owned firm that provides 401(k) plan administration with a specialty in non-traditional plans like ROBS and even cannabis industry 401(k)s. LRS offers ROBS design and ongoing administration, typically at prices similar to big providers. They emphasize compliance and custom plan design. LRS might be a good fit for unique industries or those seeking a provider active in professional circles (they frequently contribute to retirement industry publications).
401k Solutions by DRDA: DRDA is actually a CPA firm that offers a ROBS program sometimes branded as “BORSA” (Business Owner’s Retirement Savings Account). Their approach is very CPA-driven, and some clients prefer this if their CPA is involved. Costs are comparable to others (~$5k setup).
Equity Partners, Guidant, etc.: Actually, Guidant and Benetrends we covered, but it’s worth noting there are also local or regional firms that sometimes do ROBS on a smaller scale (perhaps a local pension consulting firm). However, it’s crucial to use a provider who truly understands ROBS, given the stakes.
When evaluating providers, consider these comparative factors:
Experience: How long have they been doing ROBS and how many have they done? (Guidant/Benetrends lead on volume, but others have deep experience too)guidantfinancial.com.
Compliance Record: Have they had plans audited or disqualified? Do they offer audit protection? (Most major ones have spotless or near-spotless records and will defend you)guidantfinancial.combenetrends.com.
Services Included: Does the fee include everything needed – corporation setup, plan docs, Business Valuation, ongoing 5500 filings, legal reviews, etc.? Are there extra charges for amendments or additional consulting? (The best providers bundle all necessary support in their fee)guidantfinancial.comfranfund.com.
Pricing: Both setup and long-term costs matter. A low upfront fee might be offset by high monthly fees over time, and vice versa. Calculate at least 5-year cost. Also watch for ancillary fees (e.g., some might charge for adding your spouse to the plan or other activities; most do not, but it’s worth asking).
Customer Service: Do you get a dedicated account manager? Is support unlimited? Check reviews for how they treat clients after the sale. Responsive support is key because running a ROBS plan will raise questions over time (hiring employees, etc. needs guidance).
Credentials: Are there in-house ERISA attorneys, or are they outsourcing critical work? Do they have staff with professional designations (e.g., QKA, CPA, ASA for valuation)? A knowledgeable team can resolve issues faster.
Exit Strategy Help: Good providers will help when you want to unwind the ROBS – whether selling the business or terminating the plan. Ensure they will be there to assist in those transactions (some offer guidance on selling the stock back or plan termination process).
All the providers profiled above have enabled many entrepreneurs to fund businesses successfully. The “best” ROBS provider ultimately depends on your priorities: do you value the absolute lowest cost, or do you prefer premium support? Do you need the fastest setup, or are you more concerned with having a large team behind you?
The good news is that all major ROBS providers operate under the same IRS rules and have adapted to the IRS’s 2008 guidelines, so the structures they set up are fundamentally similar. The differences are in service, support, and price. Whichever you choose, be an informed consumer: ask about their experience, exactly what you get for the fees, and how they handle compliance and auditsguidantfinancial.comguidantfinancial.com. A reputable provider will welcome these questions and provide straight answers.
Establishing a ROBS-funded business is not a “set-and-forget” proposition. Both during the setup and as you operate your business, you should follow best practices to stay on the right side of IRS and DOL rules and to improve your chances of business success. Based on industry guidelines and expert advice, here are best practices for ROBS compliance and performance:
Use Qualified Professionals: From the outset, use a reputable ROBS provider or qualified ERISA attorney to set up the plan. DIY is not advisable here. Ensure that professionals (including a certified appraiser for the valuation and a CPA for accounting) are involved so that all technical steps – incorporation, plan adoption, rollover, stock issuance – are done correctly and documented.
Document Everything: Maintain a paper trail of all ROBS transactions. This includes the plan documents, corporate minutes authorizing the stock issuance, the stock certificates issued to the plan, valuation reports, the rollover paperwork (Form 1099-R and confirmation of funds transfer), and ongoing plan records. Good recordkeeping will save you if questions ariseirs.govirs.gov. For example, keep copies of each year’s Form 5500 and the appraisal for that year’s stock value in a dedicated file.
Follow the Plan Terms: After setup, operate your 401(k) plan exactly according to its terms and legal requirements. This means if an employee becomes eligible for the plan, provide enrollment forms timely. Do not illegally exclude employees or create hurdles for them that aren’t in the plan document. If your plan says all full-time employees over age 21 can join after 3 months, then when you hire someone meeting that, you must allow them to participate. And if they roll in money and want to buy company stock (unlikely, but they must have the option), you cannot stop them or amend the plan to cut that off improperlyirs.govsimplybusinessvaluation.com.
Reasonable Compensation: If you’re drawing a salary from the corporation (which you likely will as you work there), make sure it’s a reasonable salary for the work you perform. Overpaying yourself could be seen as a way of funneling retirement funds to yourself indirectly. The IRS has noted paying yourself an “excessive salary” as a red flagtenetfinancialgroup.comtenetfinancialgroup.com. Work with your CPA to determine a market-based salary that the business can afford. Also, any personal expenses should not be run through the business in a way that abuses the plan’s investment.
No Personal Use of Plan Funds: Treat the 401(k) plan (which owns the stock) as completely separate from you personally. The plan’s assets (the stock and any other investments it might have) cannot be used for personal benefit or as collateral for personal transactions. Do not borrow money from the plan or pledge the plan’s stock as security for a personal loan. These would likely be prohibited transactions.
Corporate Formalities: Run the C-corp like a real corporation. Hold annual shareholder meetings (even if the only shareholder is the plan), elect officers, keep corporate minutes. Pay yourself wages through payroll with appropriate tax withholdings (don’t just take draws). Keep the business and personal finances separate. Not only is this good business practice, but it also demonstrates that the C-corp is an active, viable employer, not a shell.
Plan Contributions (if any) Carefully: With a ROBS 401(k) plan, you (and any employees) can even make new contributions from salary, like a normal 401k. If the business has cash flow and you want to contribute to your plan or match employees, you can – just do it within legal limits and deposit contributions timely. Some ROBS businesses skip contributions (since the plan already owns a chunk of stock), but if you do contribute, it’s a good idea to invest those contributions in assets other than the employer stock (for diversification). The plan can certainly hold other investments.
Annual Reporting and Plan Maintenance: Do not miss the annual Form 5500 filing deadline. If your plan year is calendar year, typically the 5500 is due July 31 (can be extended to Oct 15). Your TPA or provider will usually prepare this, but you must review and sign it. Also issue any required participant statements or Summary Annual Reports. Keep the plan document up to date – Congress often passes laws requiring plan amendments (e.g., the SECURE Act adjusting retirement rules). Your provider should supply amendments; be sure to formally adopt them by signing and dating as needed.
Monitor Business Performance: Keep an eye on how the business is doing. Because your retirement is tied to it, you need to be realistic. If the business is struggling, don’t throw good money after bad and lose all retirement savings – sometimes cutting losses is prudent. Conversely, if the business is thriving, consider whether at some point you want to buy out the plan’s shares to reclaim your retirement money in a different form (you might prefer to diversify your retirement holdings by having the plan sell its stock back to you or the company and then invest in mutual funds, etc., within the plan). That kind of transaction requires a valuation and adherence to rules, but is worth discussing with financial advisors as part of an exit plan.
Plan Exit Strategy: Eventually, if your business is successful, you’ll want to exit the ROBS arrangement. Options include: selling the business (the plan then gets its share of proceeds, which can go back into traditional investments or be distributed), buying the stock from the plan gradually (with personal funds or via bonuses that go into the plan), or terminating the plan once you no longer have employees and perhaps converting the C-corp to an S-corp (after the plan is fully divested of stock). Each route has tax implications. A best practice is to consult with your CPA or advisor a couple years in advance of a planned exit to do it smoothly and in compliance with rules (e.g., if the plan’s stock is sold, that might be a taxable event for the plan if not rolled to an IRA, etc.). Don’t wait until the last minute.
Stay Informed: Laws and IRS enforcement priorities can change. For instance, if Congress ever altered the rules on retirement plans investing in employer stock, that could affect ROBS. Or the Department of Labor could issue new guidance. While major changes are unlikely without notice, it’s good to stay in touch with your ROBS provider for any updates. Many providers send newsletters or have blogs (SimplyBusinessValuation’s blog, for example, covers IRS updates on ROBS) – keep an eye out so you can react to any new compliance requirements.
By adhering to these best practices, you greatly increase the likelihood that your ROBS-funded venture will remain compliant and successful. Thousands of entrepreneurs have used ROBS to jump-start businesses – and while many have succeeded, some have failed, often when ignoring the fundamentals. For example, the IRS found some ROBS businesses didn’t even get off the ground before depleting the retirement fundsirs.gov, sometimes because of legal issues or heavy feesirs.gov. This underscores that you need not only to follow the rules but also to run the business smartly. Do your due diligence on the business idea, manage expenses wisely (remember, recurring provider fees are a factor), and treat your retirement money with the care it deserves.
Q1: Is a ROBS 401(k) funding strategy legal?
A: Yes – when done correctly. ROBS (Rollover as Business Start-ups) arrangements are legal under the tax code and ERISA. The IRS has confirmed that ROBS are not “abusive” by natureirs.gov. However, they must be executed in strict compliance with IRS and DOL rules to remain qualified. This means establishing a proper C-corp and retirement plan, following all plan requirements, and avoiding any prohibited transactionssimplybusinessvaluation.comtenetfinancialgroup.com. The IRS scrutinizes ROBS because they primarily benefit the business owner, so any missteps (like not offering the plan to new employees, or not paying fair market value for stock) can trigger penalties. If you use a reputable provider and adhere to the guidelines, ROBS is a legitimate funding method. It’s always wise to consult with a knowledgeable CPA or attorney to review the structure for peace of mind.
Q2: What size of retirement account is recommended to use a ROBS?
A: While there’s no hard minimum (technically any amount can be rolled over), most experts suggest having at least $50,000 in retirement funds to make a ROBS worthwhilefitsmallbusiness.comfitsmallbusiness.com. Many providers require or recommend $50k as a minimum. Using ROBS for very small amounts (say $10k or $20k) usually isn’t cost-effective because setup fees ($5k) and ongoing costs would eat up a big percentage of that. Some providers, like Pango Financial, will go as low as ~$30k in fundsfitsmallbusiness.com, and in dire need cases IRA Financial has no set minimumfitsmallbusiness.com, but the return on investment needs to justify the fees. If you have, for example, $200k in a 401k and need $100k for a business, ROBS can be a good solution. If you only have $20k, you might consider alternative financing or even taking a taxable distribution (penalties on $20k might be less than ROBS fees). Every case is different, but generally the more you roll, the more ROBS makes sense.
Q3: Can I use a ROBS to buy an existing business or franchise, or is it only for new startups?
A: You can use ROBS for both startups and acquisitions of existing businesses (including franchises). The key is that you must create a new C-corp that sponsors the plan. For an acquisition, typically the new C-corp is formed and the plan buys stock in that C-corp, and then that C-corp uses the funds to purchase the assets or equity of the target business. Many franchise purchases are done via ROBS, and it’s a common funding method for franchisees. The process is essentially the same. Just keep in mind that if you’re buying an existing business that has employees, those employees may join your 401k plan (once eligible) and you’ll need a good valuation to determine the purchase price allocation for the stock. Also, with an existing business, due diligence is important – if that business has debt or liabilities, your new corporation will have to handle those. ROBS can fund the purchase price and initial capital for an acquisition just as it funds a brand-new venture.
Q4: What kinds of retirement accounts can be used in a ROBS?
A: Generally, tax-deferred retirement accounts from which you can do a rollover are eligible. The most common sources are 401(k) plans from former employers, traditional IRAs, 403(b) or 457 plans, Thrift Savings Plan (TSP) for federal employees, and other qualified defined contribution planstenetfinancialgroup.com. You cannot use a Roth IRA or Roth 401(k) (post-tax money) in a ROBS – the IRS rules make it virtually impossible to roll Roth funds into a qualified plan without triggering taxes. Also, you typically cannot use funds from an active 401(k) with a current employer (most current employer plans won’t allow in-service rollovers unless you’re over 59½). So usually it’s money from a previous job’s 401k or an IRA that was rolled over from a previous plan. SEP IRAs and SIMPLE IRAs can also be used once they are rolled into a 401k (SIMPLE IRAs have a two-year participation rule before they can be rolled). Pension plans or defined benefit plans can be a bit trickier, but they can sometimes be rolled if terminated. It’s best to ask your provider to review the type of account you have. They may need to do a direct rollover from IRA to 401k or similar.
Q5: Are there any types of businesses that cannot be funded via ROBS?
A: Most active, for-profit businesses qualify for ROBS funding. But there are some exceptions or cautionary notes. For instance, purely passive investment businesses (like a business that only holds rental real estate for your personal profit) may not qualify because you as the owner might not be a bona fide employee (ROBS requires you to work in the business). If you tried to ROBS into an entity just to invest in rental properties, that’s questionable. Also, certain regulated businesses like gambling or some financial services might have issues unrelated to ROBS. One notable category is the Cannabis industry – because it’s federally illegal, using a tax-qualified retirement plan to fund a cannabis business could be problematic (some providers do it, structuring carefully, but it’s gray). Non-profits cannot use ROBS because ROBS requires a for-profit C-corp (and a 401k plan which by definition is for private sector). Also, if your business is a professional corporation (PC) where ownership is restricted to licensed individuals (like law firms, medical practices in some states), a ROBS might conflict with those rules since a retirement plan trust would be an owner. So, always disclose the nature of your business to the ROBS provider so they can assess any special considerations. The vast majority of franchises, retail, services, manufacturing, etc., are fine.
Q6: What happens if my ROBS-funded business fails?
A: If the business fails, unfortunately your retirement plan’s investment in the company could be lost. The 401k plan owns stock in your company, and if the company becomes worthless, that stock is worthless – meaning your rollover money is gone. This is the biggest risk of ROBS: you’re putting retirement savings at risk in a venture that might fail (and indeed, the IRS found many ROBS ventures had high failure rates)irs.gov. In practical terms, if you shut down the business, you would terminate the 401k plan as well, and any remaining assets of the plan would be distributed. If the stock is worthless, there’s nothing much to distribute (maybe a small amount of cash if any left, which would go back to your plan or to you as a taxable distribution). There is no penalty from the IRS just for failing – failing isn’t a compliance violation as long as you followed the rules while operating. You won’t owe the IRS taxes on the rollover or anything (the rollover was legitimate). The only tax consequence is if any plan assets are distributed to you at the end (then you’d pay tax on that like any distribution). One silver lining: Plan losses (drop in stock value) might be deductible as a loss in some cases, but it’s complex (usually not, because personal retirement losses are not deductible). Essentially, the retirement account absorbs the loss. It’s a sad outcome, but that’s why ROBS is somewhat risky – it trades tax savings for putting your nest egg on the line. Always have a solid business plan and possibly keep some retirement funds out as a backup if you can.
Q7: Can I pay myself a salary or take distributions from the business under ROBS?
A: You absolutely can (and likely should) pay yourself a reasonable salary as an employee of the C-corp, for the work you do. In fact, ROBS guidance requires that the owner be an active employee – you can’t just be passivetenetfinancialgroup.com. So taking a salary is expected. Just ensure it’s not excessive. As for distributions, since it’s a C-corp, if the company ever pays dividends to shareholders, the 401k plan (as the shareholder) would receive those. You as the individual wouldn’t take dividends personally (unless you also personally own some shares outside the plan, which usually you do not initially in ROBS). Most small businesses don’t issue dividends; they reinvest earnings or pay salary/bonuses. You also cannot just withdraw money from the 401k plan. If you needed to take funds out of the plan, it would be like any 401k – either a loan (which the plan could allow within limits) or a distribution (taxable and penalized if under 59½). It’s not advisable to do that. In short: Pay yourself a salary for your work. Do not treat the plan as a cash source beyond that. Also, you can have the corporation adopt other benefit plans (like health insurance, etc.) and that’s fine – those are just normal business expenses, not from the 401k.
Q8: What ongoing costs and tasks should I expect after the ROBS is set up?
A: The main ongoing tasks/costs are: administration fees to your ROBS provider or TPA (typically $1200–$2000 per year, depending on provider) and the associated compliance tasks. Each year you (or your TPA) will need to: file a Form 5500 for the 401k planirs.gov, issue any required 1099-R (for example, if someone leaves and takes a distribution), update the valuation of the stock for the plan’s records, perform any nondiscrimination testing if contributions were made, and furnish participant statements. The business also will file its corporate tax returns and any other business filings. Plan administration is not overly time-consuming if handled by a professional – usually you provide some data (like confirming any employees, any contributions) and they do the rest. But you do need to stay on top of these requirements. Expect to spend a little time each year (a few hours working with your provider) to ensure all forms are filed. The costs, as noted, vary: Guidant is $149/monthfitsmallbusiness.com, Benetrends $155/month, FranFund $130/month, down to some like MySolo401k at ~$75/month effectively. Some providers have one-time or periodic additional fees (e.g., if you add an employee later who rolls funds in, they might charge to handle that). Also, if you eventually terminate the plan, there might be a plan termination fee or a final 5500 filing cost. It’s good to clarify with your provider upfront what all potential fees are. But in general, plan to pay around $1,500 yearly for maintenance and factor that into your business budget.
Q9: How does the 401(k) plan in ROBS deal with other employees? Do I have to contribute for them or let them buy stock?
A: Great question. Once you hire employees who meet eligibility, they have the right to participate in the 401(k) plan just like any employee would in a regular company. That means they can defer salary into the 401k (if your plan allows 401k deferrals, which most do) and you might choose to offer a match or profit-sharing, but you are not required to contribute on their behalf unless you want to (just as any 401k plan might or might not have employer contributions). Regarding stock: The plan likely has a provision that allows investment in employer stock (that’s how your rollover was invested). Technically, that feature should be available to all participants – so if an employee wanted to direct their account to purchase company stock, they could. In practice, most employees won’t do that (they prefer diversified mutual funds, and often they won’t even know it’s an option unless you tell them). Many ROBS plan documents actually restrict new contributions from buying stock or cap it (to avoid employees putting in money and then you having to issue new stock). However, as noted, you cannot amend the plan to eliminate the stock ownership feature immediately after funding if that violates IRS rules on equal accessirs.gov. The IRS’s main concern is you didn’t design it to benefit only you. So as long as you administer the plan fairly, you’re fine. If down the road you have several employees in the plan, you might find it complex to manage a plan holding company stock plus other funds – at that point, some owners will choose to terminate the plan and roll everyone to IRAs (perhaps after buying back the stock). But initially, you likely won’t have to give stock or shares to employees – they’d have to roll in their own funds or use their own 401k money to invest, which is uncommon. Do make sure to get professional TPA support for handling employee contributions if you have them, to pass testing etc.
Q10: Why is an independent Business Valuation required? Can I just value the company myself?
A: An independent valuation is highly recommended (essentially required in practice) because it provides an objective, supportable fair market value for the stock that your 401k plan is purchasing. The IRS expects “adequate consideration” for that purchasesimplybusinessvaluation.com, which in an ERISA context usually means a valuation by a qualified appraiser, especially if the amount is significant. If you try to DIY the valuation, a few things could go wrong: (1) You might not be seen as independent (since you as the owner have a conflict of interest in the value), (2) you might use a wrong method or overlook important factors, resulting in an inaccurate valuation, and (3) the IRS or DOL will likely not accept a self-valuation if your plan is audited – they have explicitly criticized valuations that were not well-documentedsimplybusinessvaluation.com. By hiring a professional appraiser (often a credentialed business valuator), you get a comprehensive report that justifies the share price. This not only protects you legally but also gives you insight into what your business needs to be worth to provide a good return. Many ROBS providers include a valuation in the setup or have referred partners. It usually costs a few hundred to a couple thousand dollars. For example, SimplyBusinessValuation.com offers full valuation reports for only $399, which is a very affordable option to ensure compliance (especially compared to the stakes involved). Skipping on a proper valuation is simply not worth the risk – an audit could end up costing far more in taxes, penalties, and legal fees if the valuation is deemed improper. So, yes, you need an independent valuation at the start, and periodically thereafter for annual reportingsimplybusinessvaluation.com. Think of it as an insurance policy for your retirement investment.
Q11: What is the IRS looking for in a ROBS audit or inquiry?
A: Based on IRS memos and the 2009 ROBS Compliance Project, if the IRS audits a ROBS plan, they will look at several areas: (a) Did the plan file all required returns (Form 5500)?irs.gov They often check that first – many ROBS audits were triggered because a DL was issued but no 5500 was on record. (b) Stock valuation: They will ask how the purchase price was determined and request documentationirs.govirs.gov. (c) Plan operations: They will review whether the plan has other participants, and if not, why. If you amended the plan at any point, they’ll see if that harmed coverage (e.g., freezing new entrants improperly)irs.gov. (d) Use of funds: They might examine if any of the business funds were used in a way that benefits the owner personally other than salary (like, did you buy a personal residence or car with business funds, etc. – which could imply a prohibited transaction). (e) Promoter fees and set-up: sometimes they check that the setup was done correctly – e.g., was the rollover done as a direct rollover (with a 1099-R coded G) and not taken as a distribution? Did the plan have a proper Fidelity Bond (ERISA bond) if required (plans covering employees typically need one)? (f) Your role: They will confirm you are a legitimate employee of the business (because if you weren’t actually working in the business, they might say it’s not a valid ROBS structure). Essentially, they want to ensure the plan is a genuine retirement plan and the transaction was fair. If everything is in order – corporation active, business actually operating, employees treated fairly, proper valuation done, forms filed – then audits usually close with no changes. Providers often handle the correspondence, which often is just a letter inquiry rather than full on-site audit if something minor like a missing 5500 triggered it. The IRS “gets it” now that ROBS can be done right, so audits are relatively rare and usually uneventful if you’ve been diligentlendingtree.com.
Q12: How does using ROBS affect my future retirement savings?
A: When you use ROBS, you are essentially investing a chunk of your retirement in your own business. This has pros and cons for your future retirement security. On one hand, if your business thrives, the value of the stock that your 401k owns could grow exponentially – potentially giving you an even larger retirement pot when you eventually sell or retire. Also, you can continue to fund the 401k plan with contributions from the business profits, building your retirement savings further (diversified if you choose). On the other hand, if the business fails, you could lose the portion of retirement funds you rolled over. You also lose the compound growth that money might have earned in the stock market during that time. Many advisors would caution not to put all your retirement assets into a ROBS; if possible, leave some in a diversified IRA/401k or in other assets as a backup. Keep in mind, with ROBS you’re not spending the money – it’s an investment. So if the business does okay, you still have the value in another form. But it’s undiversified risk. Also, note that because the business is in a 401k, you can’t just tap that money without taxes if you needed it personally (until you do a distribution in retirement or a plan loan). So consider your age and timeline: if you’re younger and have time to recover from a loss, ROBS might fit. If you’re closer to retirement, risking all your savings is more dangerous. In any case, try to have a plan B for retirement – whether it’s keeping some funds outside ROBS or a clear exit strategy to roll money back into traditional investments after a few years. And always keep contributing to retirement if you can (the ROBS 401k can accept new contributions up to annual limits). Treat your ROBS plan as a critical part of your retirement that needs ongoing attention, not just a piggy bank you broke open. This mindset will help ensure you think long-term even as you build your business.
Hopefully, these FAQs address some of the most common questions and concerns. ROBS can be complex, but with the right guidance and understanding, it can be a powerful tool to finance a business you believe in.
401(k) Plan: A tax-qualified retirement plan offered by employers that allows employees to contribute a portion of their wages pre-tax (traditional 401k) or post-tax (Roth 401k) to save for retirement. In a ROBS, a new 401k plan is created for the startup business to facilitate the rollover and stock purchase.
Adequate Consideration: A term from ERISA meaning fair market value paid for an asset. In ROBS, the retirement plan must pay “adequate consideration” (fair price) for the stock of the company to avoid prohibited transaction issuessimplybusinessvaluation.com.
C Corporation (C-corp): A type of corporation that is a separate tax-paying entity (files its own corporate tax return). ROBS requires the business to be a C-corp, because only a C-corp’s stock can be owned by a 401k plan in this arrangementsimplybusinessvaluation.com. C-corps have no ownership restrictions (unlike S-corps) and can have retirement plans as shareholders.
Determination Letter (DL): A letter ruling from the IRS that confirms a retirement plan’s written document meets the required standards of the Internal Revenue Code. Many ROBS plans apply for a DL to get IRS assurance on the plan setupirs.gov. It doesn’t guarantee operational compliance, but it’s a good thing to have.
Disqualified Person: Under IRS §4975, this includes the plan participant, plan fiduciaries, the employer, and certain family members, among others. Transactions between a plan and disqualified persons that benefit the latter are prohibited (unless an exemption applies). In ROBS, the plan’s sponsor (the company) and owner are disqualified persons to the plan, so the stock sale has to fit the exemption for employer securities.
ERISA: The Employee Retirement Income Security Act of 1974. This federal law governs private-sector retirement and benefit plans. It sets standards to protect plan participants (like fiduciary duties, reporting requirements, etc.). ROBS plans are ERISA-covered 401k plans, which is why compliance with ERISA’s provisions (e.g., nondiscrimination, bonding, reporting) is required.
Form 5500: The annual report that 401(k) and other ERISA plans file with the IRS and Department of Labor. It discloses information about plan assets, participants, and operations. ROBS 401k plans must file a Form 5500 each year, since the plan owns the business (thus not qualifying for the one-participant plan exemption)irs.govsimplybusinessvaluation.com.
Form 1099-R: A tax form issued for distributions from pensions, annuities, IRAs, etc. When you roll funds from an old 401k or IRA into the new plan, a Form 1099-R is generated by the custodian, coded to show it was a direct rollover (so not taxable)irs.gov. Also, if you eventually take money out of the plan, a 1099-R will report that distribution.
Franchise: A type of business where an individual (franchisee) operates a location of a larger brand under a license agreement. Franchises are common uses of ROBS funding, as they often require a sizable upfront investment (franchise fee, buildout, etc.). ROBS can supply the equity for a new franchise unit. (Not an IRS term, but useful context since ROBS is popular in franchising).
Fair Market Value (FMV): The price at which an asset would change hands between a willing buyer and seller, neither under compulsion and both having reasonable knowledge of relevant facts. An independent appraisal is typically used to determine FMV of a private business’s stock for ROBSsimplybusinessvaluation.com. FMV is crucial at the initial stock purchase and for annual valuations thereafter.
Fiduciary: A person or entity with an obligation to act in the best interest of another party. In retirement plans, plan fiduciaries (often the business owner in a ROBS, as the plan trustee/administrator) must act prudently and solely in the interest of plan participants. This includes investing assets prudently (hence ensuring the stock purchase is fair) and following plan terms. Breach of fiduciary duty can lead to personal liability.
Prohibited Transaction: Certain transactions between a retirement plan and disqualified persons that are banned by law (unless an exemption applies). Examples: sale, exchange, or leasing of property; lending of money; transfer of plan income to a disqualified person. In ROBS, the purchase of stock is a transaction between the plan and the plan sponsor (disqualified persons), but it’s permitted as a statutory exemption for employer stock provided the plan pays fair market value and meets ERISA’s requirementssimplybusinessvaluation.com. Any other dealings (like the owner using plan money for something else, or the plan buying stock and then letting the owner have those shares personally) would be prohibited.
Plan Administrator / Third-Party Administrator (TPA): The party responsible for the day-to-day administration of the retirement plan. Often the business owner is the named administrator in the plan document, but companies typically hire a Third-Party Administrator to handle compliance (filings, testing, recordkeeping). In ROBS context, providers like Guidant, Tenet, FranFund, etc., act as TPAs for their clients’ plans, doing the heavy lifting on upkeep.
Plan Participants: Employees (including the owner) who participate in the 401k plan. In a ROBS, initially the owner is the sole participant (having rolled over their funds). Over time, if employees join the plan, they become participants too. Participants have an account in the plan and receive statements of their account value (which for the owner is largely the value of company stock held).
Qualified Plan: A retirement plan that meets the requirements of IRC §401(a) and related sections, which gives it tax-advantaged status (employer contributions deductible, plan earnings tax-deferred, etc.). A 401(k) profit-sharing plan is a type of qualified plan. ROBS uses a qualified plan as the vehicle to enable the tax-free rollover and investment.
Rollover: The act of moving retirement funds from one account to another in a way that preserves their tax-deferred status. In ROBS, typically it’s a direct rollover from an IRA or old 401k into the new plan’s trust accountirs.govirs.gov. Direct rollover means the funds go directly from one custodian to the other (no 60-day issues, no tax withholding). It’s reported to the IRS via Form 1099-R but with a code that indicates it’s non-taxable.
ROBS (Rollovers as Business Start-ups): The arrangement allowing retirement funds to be rolled into a new 401k, which invests in the new business. Often referred to as 401k Business Financing. Technically not an IRS-defined term, but a nickname widely used. The IRS in internal memos calls them ROBSirs.gov. It’s not a program or section of the tax code, but rather a combination of lawful actions structured in a certain way.
Stock Purchase Agreement: In a ROBS, this is the agreement or corporate resolution documenting that the company is issuing shares to the 401k plan in exchange for the rollover funds. It will state how many shares, at what price, etc. This document, along with the stock certificates, evidences the plan’s ownership. It should be kept with corporate records and plan records.
UBIT (Unrelated Business Income Tax): Not directly a ROBS term, but worth noting: Sometimes people ask if the 401k plan has to pay tax on the business income (since a plan is tax-exempt generally). The 401k’s ownership of the active business doesn’t trigger UBIT on the plan because the income is from the operating company, not the plan itself running a business. The company pays corporate tax on its profits; the 401k is just a shareholder. There is an IRS ruling confirming that a qualified plan holding employer securities does not result in UBIT on the plan for the operating profits. So generally, UBIT is not an issue in ROBS, unlike if an IRA owned an active business (IRAs can face UBIT more directly).
Valuation (Appraisal): An assessment of the value of a business or asset, typically done by a professional using standardized methods (income approach, market comparables, asset approach). In ROBS, an initial Business Valuation is needed to support the stock issuance pricesimplybusinessvaluation.comsimplybusinessvaluation.com. Annual valuations may be less formal but still should be grounded in method (some use formulas or a re-appraisal if the business has grown significantly). Terms within valuation you might hear: Fair Market Value (FMV) (defined above), Discounted Cash Flow (DCF) (a method), EBITDA multiple (a market method), etc. The critical thing is that it’s unbiased and well-documented.
Voluntary After-Tax Contributions: (Technical, but sometimes asked) – these are contributions some plans allow beyond the 401k limits that can be later converted to Roth. Generally irrelevant to ROBS, but if someone wanted to pump more money in via the plan, they might ask if they can contribute after-tax and then use that to buy more stock. It’s not recommended or typical in ROBS plans – better to keep it simple with normal contributions. But just part of plan lingo.
This glossary covers the main terms that a new ROBS user or advisor will encounter. Understanding these will help demystify the process and enable clearer communication with providers and professionals.
Conclusion and Next Steps: Using a ROBS to finance your business can be a transformative opportunity – it allows you to invest in yourself and your dreams, leveraging funds you’ve set aside for the future. As we’ve detailed, success with a ROBS requires meticulous compliance, sound business judgment, and the right partners supporting you. A critical takeaway is the importance of Business Valuation and ongoing plan oversight in protecting your retirement investment. This is where SimplyBusinessValuation.com can play a pivotal role. Our team of certified appraisers and valuation experts is experienced in providing the independent business valuations required for ROBS transactions, ensuring your plan remains compliant and your stock transactions are defensiblesimplybusinessvaluation.comsimplybusinessvaluation.com. For a small fraction of what you’re investing, we deliver comprehensive valuation reports (50+ pages, delivered in just a few days, at a flat $399 fee) that give you and the IRS full confidence in the numbers – a wise safeguard against future headaches.
If you’re considering a ROBS or already in one and need a valuation update, SimplyBusinessValuation.com is here to help. Our affordable, guaranteed services have helped many business owners navigate IRS requirements smoothly, so you can focus on growing your business. We invite you to reach out for a free consultation or to get started with a risk-free valuation.
Finally, remember that while this guide provides a deep overview, every situation has unique aspects. Don’t hesitate to consult with your CPA, attorney, or a ROBS specialist for personalized advice. With the right knowledge and team in your corner, a ROBS-funded business can flourish – turning your retirement funds into a thriving enterprise, and ultimately, into even greater retirement security down the road.
Ready to take the next step? If you need a professional Business Valuation for your ROBS transaction or want expert guidance on ensuring your ROBS plan stays compliant, contact SimplyBusinessValuation.com today. Our team is happy to answer questions and provide the services you need to protect and grow your investment. Here’s to your business success and a financially secure future!
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