If you’ve ever dreamed of opening your own franchise or expanding your current brand but felt limited by funding, you’re not alone. Many entrepreneurs find themselves in that same position. They have the experience, a strong business plan, and the drive to succeed, but not the upfront cash.
What most people don’t realize is that you can actually use your retirement funds to start or grow a business, without paying early withdrawal penalties or taking out a loan. It’s called Rollovers as Business Startups (ROBS), and it can be a powerful way to fund a franchise or multi-location brand if done correctly.
At SAS, we help business owners navigate this process every day. In this ultimate guide to ROBS, we’ll take you through everything you need to know about ROBS is, from how it works and how a Roth Conversion version differs to what your exit strategy should look like.
Understanding Traditional ROBS
A Traditional ROBS allows you to use funds from a qualified retirement account, like a 401(k) or traditional IRA, to invest in your own business. When structured properly, this process doesn’t trigger taxes or early withdrawal penalties.
Here’s how it works in simple terms:
- You establish your business as a C Corporation. This is important because only a C-Corp can issue the kind of stock required for ROBS.
- Your new business creates its own retirement plan, usually a 401(k).
- You roll over your existing retirement funds into that plan.
- The plan then buys stock in your new company, providing capital for your business to use, whether that’s buying a franchise, purchasing equipment, or funding growth.
When done properly, a ROBS lets you invest in yourself without taking on debt or giving up ownership to outside investors. It’s been a common, IRS-compliant structure for years when managed correctly
Introducing ROBS With a Roth Conversion
While a Traditional ROBS offers tax deferral and simplicity, some business owners choose to take it a step further with a Roth Conversion.
A ROBS with a Roth Conversion works almost the same way. You still form a C-Corp, create a retirement plan, roll over your funds, and have the plan buy company stock. The key difference is that you convert the pre-tax funds to a Roth during the process and pay income tax on that converted amount (usually in April of the following year).
Once converted, all future growth and withdrawals from your Roth retirement account are tax-free, assuming you meet IRS holding requirements. That means if your business grows significantly or sells for a profit later, you won’t owe taxes on those gains.
This route requires careful tax planning and enough liquidity to pay the conversion tax upfront, but it can be highly beneficial for entrepreneurs who:
- Expect to be in a higher tax bracket in retirement,
- Anticipate strong business growth, or
- Want to pass on tax-free retirement funds to heirs
Comparing Traditional ROBS and ROBS With a Roth Conversion
| Feature | Traditional ROBS | ROBS with a Roth Conversion |
| Taxation at Setup | No immediate taxes or penalties when properly structured | Taxes due on converted amount, typically in April of the following year (taxable as ordinary income) |
| Future Tax Impact | Retirement withdrawals taxed as ordinary income; potential double tax with asset sale | All future growth and retirement distributions are tax-free if IRS rules are met |
| Complexity & Costs | Common, straightforward, and relatively lower complexity | Need access to liquid cash to pay taxes for conversion. Moderate complexity, requires careful tax planning and accurate financial projections |
| Suitability | Retirement withdrawals are taxed as ordinary income; potential double tax with asset sale | Ideal if you anticipate higher tax rates in retirement, wish to benefit from tax-free growth, and have the means to pay taxes when due, typically in April of year following conversion. |
Example Payout for Each Retirement Funding Option
At SAS, we often help clients model out different options before they decide, using real projections to show long-term tax impact.
Let’s say you invest $500,000 through a ROBS structure, and your business later sells for $1.5 million after you reach retirement age.
Here’s what your after-tax cash could look like in a traditional ROBS vs one with Roth conversion.
| Traditional ROBS | ROBS with Roth Conversion | ||
| Initial | Initial Investment | $500,000 | $500,000 |
| Taxes due* | $0 | ($140,000) | |
| At retirement age | Appraisal at time of selling | $1,500,000 | $1,500,000 |
| Taxes due* | ($420,000) | $0 | |
| Less initial investment | ($500,000) | ($500,000) | |
| Net Cash Payout (After Taxes) | $1,080,000 | $1,360,000 |
*Assumes Federal at 23% and State at 5%
As you can see, paying taxes upfront through a Roth Conversion can significantly increase your tax-free proceeds later. In the above example, it’s a savings of roughly $280,000 in taxes at exit.
If you can comfortably afford the upfront tax bill and expect meaningful business growth from your investment, then it’s worthwhile going with a Roth Conversion.
Planning Your Exit from a ROBS-Funded Business
Once your ROBS is in place, the next big question is how to exit strategically, because how you unwind the structure later can have a major impact on your taxes and retirement savings.
When you sell your ROBS-funded business, your retirement plan sells its shares back to the buyer (or to you personally). The proceeds flow back into your retirement account. For Traditional ROBS, those gains stay tax-deferred until you take retirement distributions. For a Roth Conversion, they remain tax-free at withdrawal
There are two common ways to sell:
- Stock Sale: Your plan sells the company’s shares directly to a buyer. This approach is simpler and often results in higher proceeds since there’s no corporate-level tax.
- Asset Sale: The business sells its individual assets, pays corporate taxes on the gains, and returns the remaining proceeds to the plan. Buyers often prefer this route for depreciation benefits, but it can mean more complexity and higher taxes for the seller.
A well-planned exit can protect your retirement funds, minimize tax burdens, and ensure a smooth transition of ownership. SAS helps business owners map out this plan early so there are no surprises when it’s time to sell.
Planning Your Exit
At some point, you’ll want to sell or transition your business. How you exit a ROBS-funded company determines your tax outcome.
When you sell your business, your retirement plan sells its shares back to the buyer (or to you personally). The proceeds then flow back into your retirement account. Gains within the plan remain tax-deferred if you used a traditional ROBS, or tax-free if you used a Roth Conversion.
There are typically two ways to sell:
- Stock Sale – The retirement plan sells the company’s stock directly to a buyer. It’s simpler and often yields higher proceeds since there’s no corporate-level tax.
- Asset Sale – The company sells individual assets, pays taxes on the gains, and the remaining proceeds go back into the plan. Buyers often prefer this route because it gives them higher depreciation benefits, but it can trigger double taxation. First at the corporate level when the business pays taxes on the asset sale, and again later when retirement funds are withdrawn as income.
Here’s an example of an Asset Sale vs a Stock Sale at a sale price of $1,500,000, with $500,000 of Net Book Value of Assets:
| Feature | Asset Sale | Stock Sale |
| Sale Price | $1,500,000 | $1,500,000 |
| Less: Net Book Value of Assets (Inventory, Fixed Assets, etc.) | $500,000 | $0 |
| Taxable Gains on Assets | $1,000,000 | $0 |
| Less: Taxes Due** | ($260,000) | $0 |
| Net Proceeds Returned to Retirement Plan (After Taxes) | $1,240,000 | $1,500,000 |
**Federal at 21% and State at 5%
As you can see, a stock sale gives the seller the advantage of higher proceeds returned to the retirement and a simpler transaction.
A well-planned exit can protect your retirement funds, minimize taxes, and ensure your business transitions smoothly. SAS help business owners design these strategies early, so when it’s time to sell, you already know how it will affect your retirement and taxes.
Common Questions From ROBS Clients
Can I reimburse myself for expenses paid personally before funding the business?
Yes. Once your business bank account is funded, you can reimburse yourself for legitimate startup expenses you covered personally. Just make sure you keep detailed records with dates, amounts, and vendors
How can I take money out of the business?
You can pay yourself a reasonable salary or performance-based bonuses, just like any employee. What’s considered “reasonable” depends on your role and the size of your business, so it’s best to consult your SAS accountant to set that appropriately
Can my ROBS C-Corp own other entities or invest in other ventures?
Yes, but with limits. Your ROBS-funded C-Corp can own shares in another C-Corp or be a partner in an LLC, but it cannot hold shares in an S-Corp.
Can my business purchase a vehicle?
If it’s used 100% for business purposes, yes. If there’s any personal use, you’ll need to handle it properly through mileage reimbursement or payroll allowances to stay compliant
Does ROBS create “double taxation”?
While a C-Corp structure is technically subject to corporate tax and personal dividend tax, dividends paid to the retirement plan itself are exempt from dividend taxes. This distinction helps mitigate the so-called “double tax” concern when structured correctly
How SAS Can Help
At SAS, we specialize in helping franchise and multi-location owners set up, manage, and eventually exit ROBS-funded businesses. From choosing between a Traditional ROBS and a Roth Conversion to planning your exit years down the road, our team handles the tax, accounting, and compliance details so you can focus on growing your business.
If you’re considering using your retirement savings to start or expand your brand, we can help you evaluate which approach fits best and ensure every step stays compliant and optimized for your long-term success.
If you’d like to learn how a Traditional ROBS or a Roth Conversion could fit into your 2026 growth plans, reach out to SAS for a consultation.
