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Insider Insights: The ROBS Strategy for Financing Your Business

June 06, 2018

I run into business owners, across the country, who financed their business venture via the Rollovers Business Startup (ROBS) strategy. This strategy allows for the tax deferred/free use of retirement monies to fund a business venture. Although its name suggests that it is used to start up a new company, we also work with a significant number of businesses, owners and entrepreneurs that use the ROBS to fund or purchase an existing business venture.

I have worked with and supported ROBS businesses and their owners for nearly 20 years. My company, Leading Retirement Solutions (LRS), is nationally recognized in managing ROBS and the 401(k) Profit Sharing Plans that are required with the strategy. We are Retirement Plan Administrators and Attorneys who regularly offer guidance and advice to ROBS business owners throughout the lifetime of their business and the ROBS strategy - from set up, to management, to exit.

For those who have already engaged in the ROBS transaction or are thinking about pursuing it as a funding option, here are some quick insights regarding what we see regularly with business owners who have used the ROBS strategy.

4 Most Common ROBS Questions:

  1. I hired employees, now what do I do?
  2. I need more money for my business, or, I want to bring additional owners into the business, can I do that?
  3. Can I use the Retirement Plan to decrease my taxes and the taxes of the company?
  4. How do I get out of the ROBS strategy (a.k.a. how do I get rid of the 401(k) Profit Sharing Plan?


4 Most Common Compliance Issues:

  1. A second 401(k) Profit Sharing Plan is set up by another vendor (common with Paychex and ADP)
  2. The Plan is not offered to employees of the Corporation, the business/owner is receiving no support or information on how to do that.
  3. IRS Form 5500 is not filed with the Department of Labor (DOL) and IRS
  4. Corporation is restructured, merged or converted to S-Corporation status, which can be done properly.


One of the biggest challenges for business owners who have engaged the ROBS strategy is that the promoters/sellers of the ROBS strategy (the company that helped you set up the structure and transaction) generally do not provide the business or the business owner with support they need once their business starts to grow. This often leaves business owners wondering what to do with the Corporation, the 401(k) Plan, employees, and how to deploy an exit strategy and more.

Luckily, that’s one of LRS’ core competencies. We’re trusted industry professionals that have helped hundreds of businesses administer their plan to make sure they stay compliant with government regulations while assisting them as their company changed and grew. I always tell our clients, the ROBS strategy doesn’t run on its own. It is comprised of various legal entities that require engagement and understanding by the business and its owners. It can be a lot to deal with, but that’s why we’re here, to help.

For more tips and information regarding retirement plans, contact us.

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