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Should You Tap Into Retirement to Fund Your Business? An Analysis of ROBS

April 19th, 2024 | 2 min. read

By Matt Patrick

Starting your own business? It’s an adventure, for sure, but let’s talk about a big roadblock many hit right off the bat: finding the cash to get things rolling. Whether you’re thinking about bank loans or chasing down investors, it feels like you’re running through an obstacle course, right? But what if there was a way to tap into your own nest egg to kickstart your business dreams?

Enter ROBS (Rollover for Business Startups), a financing strategy that allows you to leverage your retirement funds to start or buy a business. While it may sound like a golden ticket, it’s not without its complexities and risks.

At Patrick Accounting, we understand the nuances and challenges of securing business funding. With extensive experience in guiding entrepreneurs through various financing options, we specialize in uncovering less conventional methods that align with your unique business goals and circumstances.

In this article, we dive into the pros and cons of using ROBS to fund your business venture, ensuring you’re equipped with all the information you need to make an informed decision.

What is a ROBS?

ROBS (Rollover for Business Startups) is a financial strategy that enables potential business owners to use their retirement savings to fund a new or existing business without incurring early withdrawal penalties or taxes.

While it’s a tempting proposition, navigating the legal and financial intricacies of ROBS requires careful consideration and, ideally, the guidance of financial experts.

Pros of Using ROBS for Business Funding

Immediate Access to Capital

ROBS allows you to unlock your retirement funds, providing immediate liquidity to finance your business.

No Debt Obligations

Unlike loans, ROBS doesn’t saddle your business with debt, meaning no interest payments or monthly repayments.

Investment in Your Vision

Using ROBS means you’re investing in yourself. Without outside investors, you retain full control and equity of your business.

Cons of Using ROBS for Business Funding

Risk to Retirement Savings

The most glaring downside is the potential risk to your retirement nest egg. If the business fails, you could lose your savings.

Legal and Tax Implications

The process is complex and must be executed flawlessly to avoid IRS penalties. Proper structuring and ongoing compliance are critical.

IRS Scrutiny

Businesses funded through ROBS may be subject to increased scrutiny from the IRS, necessitating meticulous record-keeping and adherence to regulations.

Is ROBS Right for Your Business?

Deciding whether to use ROBS for business funding boils down to a few key considerations. Assess your business model’s viability, your financial health outside of your retirement savings, and your long-term business goals.

Alternatives to ROBS, like small business loans, crowdfunding, or angel investors, should also be explored to ensure you’re choosing the best path forward for your venture.

What Alternatives Are There to Using ROBS for Business Funding?

Exploring alternatives to using Rollover for Business Startups (ROBS) for business funding is crucial for entrepreneurs looking for the best way to finance their ventures. While ROBS can be a viable option for some, it’s not without its risks, particularly the potential loss of retirement savings if the business fails. Learn more about 9 alternatives to using ROBS to fund your business to weigh your options.