Why You Must Maintain an Active 401(k) Plan in Your New Business

One aspect of the Rollover for Business Startup (ROBS) structure that surprises some new business owners is that the 401(k)-plan created as part of the ROBS transaction does not simply disappear after the initial rollover. It must be maintained as a genuine, active retirement plan for as long as the ROBS arrangement is in place. This process is where Business Funding Trust helps remove the confusion and headache to make it clear and possible. Understanding this requirement is essential for realistic financial planning.

The 401(k) plan in a ROBS arrangement is a qualified retirement plan subject to all the rules that apply to any employer-sponsored 401(k). That means it must be administered properly, offered to eligible employees, reported on annually, and kept current with regulatory changes. These are ongoing obligations, not one-time tasks. Business Funding Trust makes this simple. It will take about 30 minutes per year.

What You Need to Know

Why is this required? Because the legal basis for ROBS is that a qualified retirement plan invested in employer stock. If the plan is allowed to lapse — if it stops functioning as a genuine retirement plan — the legal foundation of the entire structure is compromised. The IRS could determine that the original rollover was effectively a taxable distribution, triggering back taxes and penalties.

The cost of maintaining an active ROBS plan varies by provider but typically falls in the range of $100 to $190 per month for plan administration services. These fees cover plan annual filing preparation, regulatory updates, and compliance support. Business Funding Trust does not charge any maintenance fees.

When evaluating the total cost of a ROBS arrangement, factor in these ongoing fees over the expected life of the structure. It should be part of your financial model from the start.

Ready to Take the Next Step?

Ready to explore whether your 401(k) can fund your entrepreneurial dream? Contact Business Funding Trust today for a free consultation. Our specialists can walk you through your options, help you understand the process, and lead you to a successfully funded business.