Using ROBS (Rollover as Business Startups) for Franchise Financing

 

Four-panel comic titled 'Using ROBS for Franchise Financing'. Panel 1: A man explains ROBS lets you roll over 401(k) funds into a C corporation. Panel 2: A woman says you can invest the money tax- and penalty-free. Panel 3: A man advises to follow setup steps carefully. Panel 4: An older man warns to monitor IRS rules to avoid compliance issues.">

Using ROBS (Rollover as Business Startups) for Franchise Financing

Dreaming of owning your own franchise but lacking the upfront capital?

What if you could tap into your retirement funds—tax and penalty-free—to fund your business?

That’s exactly what ROBS, or Rollover as Business Startups, is designed to do.

Used correctly, ROBS can be a powerful financing tool for entrepreneurs ready to invest in themselves.

๐Ÿ“Œ Table of Contents

๐Ÿข What Is a ROBS Plan?

ROBS stands for Rollover as Business Startups.

It’s a legal structure that allows you to roll over retirement funds—typically from a 401(k) or traditional IRA—into a new C corporation that uses the funds to start or purchase a business, including franchises.

The rollover occurs tax-free and avoids the early withdrawal penalty (even if you’re under 59½), as long as IRS guidelines are followed.

๐Ÿ’ผ Why ROBS Is Popular for Franchise Owners

ROBS appeals to franchisees because:

✅ No loan repayment required—you're using your own assets

✅ No interest burden, unlike SBA loans

✅ Faster funding once structure is in place

✅ Shows franchisors that you have committed capital

This strategy is especially attractive to those who want to avoid personal debt or already have large retirement savings.

๐Ÿงพ Step-by-Step Setup Process

1️⃣ Form a C corporation (required by law)

2️⃣ Create a new qualified retirement plan inside the C corp

3️⃣ Rollover funds from your existing IRA/401(k) into the new plan

4️⃣ The new plan purchases stock in your C corp—providing operating capital

5️⃣ Use those funds to purchase your franchise or business assets

Most people work with ROBS specialists or third-party administrators to ensure proper ERISA compliance.

⚠️ Compliance Risks and IRS Scrutiny

While ROBS is legal, it’s under heightened IRS scrutiny.

Risks include:

❌ Operating outside of plan documentation

❌ Commingling personal and corporate assets

❌ Failing to offer the retirement plan to employees

Annual reporting, proper bookkeeping, and plan restatements are critical to remain compliant.

๐Ÿ“Ž Related Resources

These guides can help you understand the ROBS strategy and navigate legal pitfalls:

Learn how to exit your ROBS-funded franchise with tax efficiency using annuity trusts.

Explore alternative startup capital options and understand when ROBS is the best choice.

Understand how nontraditional investments, including franchises, are treated under the tax code.

Setting up 401(k)s for your staff is essential when using ROBS. Here’s how to do it right.

Eventually, you’ll want to sell or retire—learn how to unwind a ROBS plan with minimal tax impact.

Keywords: ROBS franchise financing, rollover as business startups, fund franchise with 401k, C corp retirement rollover, small business tax-free funding