Can Roth IRA or Roth 401(k) Funds Be Used in a ROBS Structure?

April 03, 2025

by a searcher from Northwestern University - Kellogg School of Management in Chicago, IL, USA

I’m currently evaluating how to fund the equity portion of an SBA deal and had been planning to utilize a ROBS (Rollover as Business Startup) structure. However, I recently heard that ROBS can only be done with pre-tax funds, and not with money in a self-directed Roth IRA or Roth 401(k).

Before I rule it out, I want to validate whether that's actually true — and if so, whether any options exist to tap Roth funds (either IRA or 401(k)) for an equity injection, whether in an SBA deal or a larger independent sponsor structure.

Would love to hear from anyone who has:

Explored or used Roth IRA/401(k) funds in a business acquisition

Considered ROBS and hit this same Roth limitation

Found any creative or compliant workarounds

Worked with a provider who knows the nuances here

Appreciate any insights or resources — feel free to DM me if you prefer!

Reply by a searcher
from Babson College in Clinton, CT, USA

Benetrends markets a ROBS+ product which appears to be a ROBS only using a Roth 401K instead of a traditional pre-tax 401K. I believe the idea is essentially the same as a ROBS only when you roll the funds out of a traditional 401K into the new Roth 401K, you pay tax at that time. In theory, at least how the sales pitch goes, if/when the business grows, those gains grow tax free because they're held in the Roth 401K. I would be VERY interested to hear from a business owner who's actually done this to learn what they're experience has been.

Reply by an intermediary
from The University of Chicago in Chicago, IL, USA

This is outside my cup of tea. However, the benefit of ROBS is use of pre-tax $ for equity. I tried to use Roth $ to invest in a (non-ROBS) private company thinking that the gain would be tax-free. I was told that Roth IRA cannot buy security of a private company; it can only buy registered security (that is what Peter Tiel did when he bought PayPal stock). I can take money out of Roth w/o tax and buy the private security, but then the gain will be taxable.

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