Starting a Business Without Disrupting Your Financial Plan

It’s possible to use retirement funds to finance a business startup through a structure called a Rollover for Business Startups, or ROBS.⁴ This approach allows you to roll retirement savings directly into a new business without triggering an early withdrawal penalty. Unlike a loan or line of credit, ROBS doesn't create debt — instead, the business holds the retirement funds as an investor. Note that ROBS arrangements require the business to be structured as a C-Corporation, since the retirement plan must be able to purchase company stock.

That said, this structure carries real complexity and risk. Because your retirement savings are directly tied to the business, its success or failure directly impacts your retirement security. ROBS also requires specialized setup and ongoing compliance — including annual Form 5500 filings — to maintain its tax-qualified status.⁴

It isn't a simple option, and it isn't right for everyone. This is a conversation best had with an advisor and a tax professional who can walk you through the tradeoffs before any decisions are made.

When a business has more than one owner, your financial plan becomes connected — at least in part — to someone else's. One of the most important steps for co-owned businesses to consider is establishing a buy-sell agreement. This legal arrangement spells out what happens if a partner wants to exit, becomes unable to work, or passes away.

Without one, a disruption involving one partner can create significant complications for the other, including disputes over valuation and control. A buy-sell agreement is designed to protect both partners' broader financial plans, not just the business itself. It's worth addressing early, ideally as part of the same planning conversations around structure and funding.

Business insurance is worth thinking about alongside your funding and structure decisions rather than as an afterthought. General liability coverage protects the business from claims related to property damage or injury. Key person insurance addresses the financial impact on the business if you or another essential team member is no longer able to work.

Both types of coverage can protect not just the business, but your personal financial plan from unexpected setbacks. The right coverage depends on the nature of your business, its size, and your specific risk profile. A business insurance professional, working alongside your financial advisor, can help you think through what makes sense.

Starting a business can affect how lenders view your creditworthiness for personal borrowing, even if the business is performing well. Business debt for which you have personal liability shows up as a liability on your personal financial profile. And income that appears inconsistent or lower on paper during the early years of ownership — even when the underlying picture is healthy — can affect how lenders assess your ability to repay personal loans.

This doesn't mean personal financing is off the table while running a business, but timing matters. If a major personal purchase like a home is on the horizon, understanding how business activity interacts with your personal credit profile is worth discussing with a financial advisor before moving forward.

How you pay yourself as a business owner has real tax implications, and the right approach depends in part on your business structure. In an S-Corp, owners who work in the business are generally required to pay themselves a reasonable salary — which is subject to payroll taxes — and may then take additional distributions, which are generally not subject to those same taxes.⁵ In an LLC taxed as a sole proprietor or partnership, all net business income is typically subject to self-employment tax regardless of how it's labeled.

The distinction affects your overall tax picture, your ability to contribute to certain retirement accounts, and your compliance obligations. Working closely with a CPA from the beginning of your business can meaningfully affect how much of your business income you ultimately keep.