ROBS (Rollovers as Business Start-ups)

Definition

A rollover structure that buys a business with retirement savings, penalty-free.

Why It Matters

It turns retirement money into equity injection without new debt, at the price of strict ongoing compliance and of concentrating your retirement in the business you now run. The compliance is not a formality. The C corporation has to keep a real plan, offer it to employees, and file for it every year. A structure that lapses can be unwound as a prohibited transaction, with taxes and penalties attached. Weigh it against the plainer alternatives first, because a bad year hits your savings and your income at the same time.

In numbers: Rolling $150k of a 401(k) into a ROBS structure funds that much of the injection with no early-withdrawal penalty or new loan; the cost is putting retirement savings into the single business you are also betting your income on.