Is a ROBS Right for You?

If you’re exploring the idea of buying a business, there’s a good chance you’ve come across something called a ROBS, short for Rollovers as Business Startups. It’s a strategy that allows you to use money from a retirement account to fund a business purchase without triggering taxes or early withdrawal penalties.

Instead of withdrawing money personally, your retirement plan becomes an investor in your company. The company receives capital, and your retirement account becomes a shareholder. No loan is created, and no withdrawal is taken.

The money is simply invested differently. Rather than indirectly owning shares of hundreds of companies through mutual funds or ETFs, you now own a meaningful stake in just one company: the one you own.

Why consider a ROBS?

Most consider a ROBS for practical reasons. They want to buy a business but don’t want to take on heavy debt payments in the beginning, or they may not qualify for traditional financing. Others need capital for a down payment on an SBA loan.

Sometimes the issue is liquidity, or having significant retirement savings but limited accessible cash.

However, focusing only on access to capital can lead to the wrong decision framework. The meaningful question is whether you want your retirement invested in only this business instead of the broader capital market.

Once you see the decision through that lens, it becomes much clearer what is truly at stake.

Other factors to consider with a ROBS

ROBS is typically most appropriate for owners who will actively operate or meaningfully influence the business. When your retirement capital is tied to performance of your private business rather than the public markets, having the ability to shape outcomes matters.

Most successful uses of ROBS occur when the owner sees the business not just as a job or income source, but as a long-term wealth-building asset. In that context, the business becomes part of your retirement strategy rather than simply something funded by it.

A powerful financial tool

In the right situations, ROBS can be a powerful financial tool that can reduce financial pressure and create meaningful long-term wealth. On the other hand, there are situations where ROBS may not be the right choice. When the opportunity is uncertain or difficult to evaluate, the risk may be disproportionate to the potential reward.

Buying a business is a major financial decision. Funding with retirement assets makes it even more significant. The goal is to make a choice that supports your broader financial life, both today and decades from now.

ROBS can be a great tool for opportunity, but comes with serious risk and ongoing administrative responsibility. Want to discuss if ROBS is ideal for you? Click here to schedule time to meet with us.

Disclosures

Life Moves Wealth Management is a registered investment advisor offering advisory services in the States of Arizona and Indiana, and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. Information contained on this site should not be considered a solicitation to buy, an offer to sell, or a recommendation of any security in any jurisdiction where such offer, solicitation, or recommendation would be unlawful or unauthorized.

The information on this site is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This information should not be relied upon as the sole factor in an investment making decision. Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made will be profitable or equal any performance noted on this site.  

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