Using ROBS to Fund a Business Acquisition

Using ROBS to Fund a Business Acquisition

Oct 5, 2026 · By Jonathan Roberts

Most buyers we talk to on Rejigg have a gap between the business they want to buy and the cash they have in the bank. For many of them, the missing piece is sitting in an old 401(k) or IRA. A ROBS (Rollovers as Business Startups)structure lets them put those retirement savings to work as equity in an acquisition, without taking a taxable distribution or paying an early withdrawal penalty.

Rejigg has partnered with Nexus, a fintech ROBS provider, to help qualified buyers unlock their retirement funds the right way. This guide covers how ROBS works, who it fits, how it pairs with an SBA loan, and the risks to weigh before you move a dollar.

Why Buyers Choose ROBS

When ROBS fits, buyers usually choose it for one or more of five reasons.

Personal liquidity. ROBS can help buyers preserve personal cash while contributing meaningful equity into the business. Retirement capital is put to work via ROBS, while personal cash remains available for reserves, living expenses, or other purposes. Acquisition transitions rarely go exactly to plan. Expenses show up before you've learned the business, and a key customer may need extra attention. Funding your equity through ROBS keeps personal cash available as a buffer.

Lower leverage. ROBS often sits alongside an SBA loan, a seller note, or a conventional bank loan. More equity means less debt and lower required payments, which gives the business more room to absorb transition costs, hiring, or a dip in working capital.

A larger equity check. Some buyers find the business they want costs more than their personal cash alone can support. Without another equity source, they'd have to pursue a smaller target, take on more debt, or bring in partners. ROBS can close that gap.

Ownership. Outside investors bring capital, but they also bring dilution, governance rights, and return expectations. ROBS lets you fund the deal without selling a stake in the company on day one.

Tax-deferred upside. The 401(k) plan owns shares in your company. If the business grows and you eventually sell, the plan receives its share of the proceeds tax-deferred. Build a more valuable company, and your retirement account grows with it.

Who ROBS Fits (and Who It Doesn't)

ROBS is most common among mid-career operators leaving W-2 roles, searchers, first-time acquirers, and franchise buyers who have spent years building up retirement savings.

ROBS may fit if you:

1. Have $50,000 or more in rollover-eligible retirement savings. There's no legal minimum, but below that level the fixed costs are hard to justify.
2. Want to acquire an operating business using your own retirement funds.
3. Plan to work in the business as an employee, on a reasonable W-2 salary.

ROBS probably isn't for you if you:

• Have less than $50,000 in eligible savings.
• Want a passive investment rather than a business you run.
• Aren't comfortable putting retirement savings at risk.

Which accounts qualify: 401(k) balances from former employers, traditional IRAs, 403(b) and governmental 457(b) plans, Thrift Savings Plans, SEP IRAs, and SIMPLE IRAs after the two-year holding period generally qualify.

Which accounts don't: Roth IRAs can't roll into a 401(k), so they can't fund ROBS. Your current employer's 401(k) is usually off limits while you still work there, since most plans don't allow in-service rollovers before age 59½.

The business itself has to be a real, active, for-profit company that's legal at the federal level. Acquisitions of existing companies, franchises, trades, manufacturing, restaurants, and software businesses all qualify.

How ROBS Works

ROBS is not a loan and it is not a withdrawal. Your retirement savings roll into a new 401(k) plan, and that plan buys stock in a new C-Corporation you form to buy the business. The C-Corp gets cash. The 401(k) plan gets equity. Here's the sequence:

1. Form a C-Corporation. ROBS only works with a C-Corp. If you're buying an existing business, the C-Corp becomes your acquisition entity.
2. The C-Corp sponsors a new 401(k) plan. This is a real retirement plan with its own plan documents, trust, and trust EIN. It has to run under ERISA standards and cover eligible employees as you hire.
3. Roll over your eligible retirement funds. Money moves directly from your old account into the new plan. Nothing is distributed, taxed, or penalized.
4. The plan buys stock in the C-Corp. The plan becomes a shareholder, the C-Corp receives the cash, and the purchase is documented with board resolutions, a stock purchase agreement, and a cap table update. When the C-Corp is acquiring an operating business, an independent valuation can show the plan paid fair market value for its shares.
5. The C-Corp deploys the capital. It uses the cash to fund the purchase price, working capital, or both.

One point that sometimes trips up first-time buyers: the money now belongs to the C-Corp, not to you. That distinction is permanent. Corporate funds can't cover personal expenses.

Timeline: Forming the C-Corp and 401(k) plan takes days. The rollover is the key variable, since it depends on how fast your current custodian releases funds. Nexus typically takes buyers from application to funding in 2 to 3 weeks; 3 to 6 weeks is common across the industry.

Cost: Expect a setup fee and ongoing administration fees. Nexus charges $5,000 for setup and $500 per quarter for administration. Rejigg users who sign up get a $250 discount on setup. See Nexus pricing for what's included.

Pairing ROBS with an SBA 7(a) Loan

The most common ROBS acquisition has two checks. An SBA 7(a) loan covers most of the purchase price, and ROBS covers some or all of the equity injection the SBA requires from the buyer. The loan supplies leverage ROBS can't, and ROBS supplies cash equity without draining your personal savings.

Why the equity injection matters more now

Under the SBA's current rules (SOP 50 10 8.1, effective October 1, 2026), an Initial Acquisition generally requires an equity injection of at least 10% of total project costs. That means everything it takes to close, not just the purchase price. On a $1.5M project, you need at least $150,000 in equity.

The rules also tightened what counts. At least half of the required injection must come from unlimited eligible sources. Seller notes, other full-standby debt, and qualifying non-controlling minority-investor equity can collectively fund no more than half of the required injection. A seller note must be subordinated and on full standby—meaning no principal or interest payments for the full term of the SBA loan. Qualifying outside-investor equity also has limits: the investor must own less than 20%, exert no control over the operating business, and face distribution restrictions until the SBA loan is repaid.

If you modeled a deal before the SOP updates, re-run the numbers.

When to start: Start when the deal is serious. For many buyers, this is at LOI. The most common mistake is starting the ROBS process after underwriting is already underway. A slow custodian can turn that late start into a delayed closing. Don't wait for the lender to ask where your equity is coming from.

What your lender will want to see

The lender still controls underwriting, documentation, and closing approval.

Expect them to ask for:

ROBS structure

C-Corp and 401(k) plan formation documents, plus evidence the plan is qualified

Rollover

Statements showing eligible funds moved from your prior custodian into the new plan

Stock purchase

Board approval, stock purchase agreement, and cap table

Equity injection

Proof the C-Corp holds and contributes the required funds

Ongoing filings

The plan's filings as they come due, starting with Form 5500

ROBS doesn't remove the personal guarantee

The SBA loan still carries your personal guarantee. What ROBS changes is what you have left behind it. A buyer who drains personal savings for the equity injection signs the guarantee with an empty balance sheet. A buyer who uses ROBS keeps that savings as a cushion for the household or business. Neither version makes the guarantee painless, and if the business fails, the retirement capital is lost too. Stacking retirement equity and SBA debt amplifies both the upside and the downside of the same bet.

For more, see Nexus's guide to ROBS and SBA loans.

Risks and Ongoing Requirements

ROBS is legal when it's structured and operated correctly, but the IRS watches it closely. Its ROBS compliance project flagged missed filings, valuation problems, and restrictions on employee participation, along with business failures and retirement losses. Here's what to weigh.

Concentration. Your retirement savings move out of diversified funds and into one private company. That's the fundamental investment risk, and no structure removes it.

Compliance failure. Some ROBS participants simply stop administering the plan: no Form 5500, no valuation, prohibited transactions. If the plan is disqualified, the original rollover can become a taxable distribution with penalties. With an SBA loan in the picture, that's a tax problem with debt attached.

Prohibited transactions. The law strictly limits dealings between the plan and the people running the company. Paying personal expenses from company funds, lending company money to yourself, or leasing your own property to the business can all cause problems. Nexus has a guide to prohibited transactions.

Business failure. If the business fails, the plan's stock loses its value. That alone isn't a tax event or a violation. The structure unwinds in order: dissolve the C-Corp, file the plan's final Form 5500, and roll any remaining plan assets into an IRA.

What you're signing up for after closing

As long as the plan owns stock, these obligations recur:

• File Form 5500 for the 401(k) plan.
• Complete required plan testing.
• Maintain an ERISA fidelity bond.
• Keep the C-Corp in good standing (registered agent, annual reports, franchise taxes).
• Keep the cap table and valuation records current.
• Offer plan participation to eligible employees as you hire.
• Pay yourself reasonable W-2 wages for actual work, approved and documented through the C-Corp, once the business can support it.
• Avoid prohibited transactions.

What to ask any provider: Who owns each of these tasks? Every item has to get done, and someone has to be responsible for it.

Getting Started with ROBS

ROBS works best as part of a thoughtful financing plan. Know your eligible retirement balance, talk to a ROBS provider and SBA lender early. Start the ROBS process when the deal is serious so your equity is in the C-Corp well before closing. Sellers move faster with buyers who can explain exactly how they'll fund the deal, and "$150K in equity through ROBS, already in process" is a strong answer. For a full view of your options, read our guide to financing a business acquisition.

If you have retirement savings and plan to run the business you buy, Nexus, Rejigg's ROBS partner, can help you check eligibility and decide if ROBS is a fit for you.

Frequently Asked Questions

Is ROBS a loan?

No. The 401(k) plan buys stock in your C-Corp, so the company receives equity, not debt. There are no loan payments or interest on the ROBS funding. The tradeoff is that the plan can lose its investment if the business fails.

How is ROBS different from a 401(k) loan?

A 401(k) loan lets you borrow from your plan, subject to repayment terms and loan limits. ROBS rolls funds into a new plan that buys company stock, creating an equity investment rather than a personal loan with interest.

Can ROBS cover my entire SBA equity injection?

It can cover some or all of it, subject to the lender's review. The C-Corp needs to hold the documented equity before closing, so start early.

How much do I need in retirement savings?

There's no legal minimum. Practically, $50,000 or more in eligible funds is where the setup and administration costs start to make sense.

Can I use a Roth IRA?

No. Roth IRA funds can't be rolled into a 401(k) plan, so they can't fund ROBS.

Do I have to pay myself a salary?

Yes. Once the business is operating and can support it, you must pay yourself a reasonable W-2 salary for the work you perform.

Ready to see whether ROBS fits your acquisition? Start with Nexus, Rejigg's ROBS partner.

This article is for educational purposes only and is not tax, legal, or investment advice. ROBS rules are fact-specific and can change. Consult independent legal, tax, and accounting professionals before making an investment decision.