ROBS Plan: Franchise Financing
What Is the ROBS Plan?
The Rollovers as Business Startups (ROBS) plan is a funding method that allows entrepreneurs to use their 401(k) or IRA funds to start or buy a business without early withdrawal penalties or loans. This option can be particularly useful for those who want to invest in a franchise or small business without taking on debt.
How Does the ROBS Plan Work?
ROBS is a legal and IRS-approved strategy that follows these steps:
Establish a C Corporation – The business must be structured as a C Corp to qualify.
Create a New 401(k) Plan – A retirement plan is set up under the new corporation.
Roll Over Existing Retirement Funds – Funds from your current 401(k) or IRA are transferred into the new plan.
Invest in Company Stock – The new 401(k) purchases stock in the C Corp, providing capital to fund the business.
Use the Funds for Your Business – The money can be used to cover startup costs, franchise fees, or operational expenses.
Benefits of Using a ROBS Plan
No Debt or Interest Payments – Unlike loans, you don’t need to repay the funds.
Avoid Early Withdrawal Penalties – Since it’s a rollover, there are no IRS penalties or tax liabilities.
Better Cash Flow – Without loan payments, more cash stays in the business.
Faster Business Growth – Having capital upfront allows you to scale more efficiently.
Potential Risks to Consider
Complex Setup & Compliance – The process involves legal and tax regulations that must be carefully followed.
Retirement Risk – Using retirement savings means you could lose funds if the business fails.
C Corporation Requirement – Not all businesses benefit from a C Corp structure due to double taxation.
Is the ROBS Plan Right for You?
If you’re considering using a ROBS plan for a franchise investment, working with a franchise consultant and financial advisor can help ensure it’s the right decision.
Want to explore franchise opportunities with ROBS funding? Contact us today to get started!
