Glossary
ROBS
Rollovers as Business Startups - using retirement funds to capitalise a business without an early-withdrawal penalty.
A new C corporation sponsors a 401(k) plan, you roll an existing retirement account into it, and the plan buys stock in the corporation. The corporation then holds the cash.
No tax and no 10% penalty apply, because nothing is distributed. What changes is that your retirement account now holds shares in one small business instead of a diversified portfolio.
The IRS publishes guidelines for these arrangements and runs a compliance project examining them. Its preliminary findings reported that most ROBS businesses failed or were on the road to failure.
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