Structure comparison at a glance

Factor ROBS / C-Corp 401k Passive + Operator Roth IRA / Solo 401k
Entity structure C-Corp required LLC / LP / S-Corp LLC inside IRA or 401k
Year 1 tax event None on rollover21% corp tax on profit Passive loss suspendedK-1 flows through None (tax-free growth)UBTI if operating biz
Loss utilization Trapped at C-Corp level Suspended — passive rules N/A — inside tax shelter
Exit tax treatment Double taxation risk (C-Corp gain → Div) LTCG if >1 yr, pass-through Tax-free (Roth)
SE / payroll tax W-2 salary required (FICA) None if truly passive None inside account
Prohibited txn risk Medium (IRS scrutiny) Low High — strict IRS rules
Compliance burden Very high (Form 5500, Corp returns, nondiscrim testing) Low to medium (K-1, state fees) Medium (custodian, UBTI calc)
Ideal for Buying / operating a main street business Growth equity, real estate, PE-style deals Long-horizon passive deals, real estate
Control level Full (operator) None / passive Limited by prohibited txn rules
All three structures can be combined strategically. Personal capital funds working capital; retirement accounts fund equity positions; operator structure provides liability separation. See Decision Matrix tab.
ROBS — Rollover as Business Startups
Uses existing retirement funds (traditional 401k / IRA) to capitalize a new C-Corp. The C-Corp sponsors a new 401k plan, which then buys employer stock. No taxable rollover event if executed correctly.
C-Corp required IRS scrutiny No debt financing No personal guarantee

How it works — steps

Form a new C-Corp
C-Corp adopts a 401k profit-sharing plan
Roll existing retirement funds into the new 401k (tax-free)
401k purchases employer stock (C-Corp shares) — QSEHRA structure
C-Corp uses the stock proceeds to fund the business
You work in the business and take a W-2 salary

Tax mechanics — Year 1

No income tax on rollover itself
No distribution penalty (not a withdrawal)
C-Corp pays 21% flat rate on net profit
Losses stay trapped in C-Corp — no pass-through
W-2 salary required → FICA on salary
Dividends to you (if any) taxed again at your rate

Key considerations

Risks / Watch-outs
IRS has identified ROBS as a Listed Transaction area of concern — not prohibited, but attracts audits
Form 5500 annual filing — expensive and complex
Nondiscrimination testing if employees are hired
Business failure = retirement savings gone
C-Corp → S-Corp conversion difficult while 401k holds stock
Exit via asset sale triggers double tax (C-Corp gain + shareholder dividend)
When it makes sense
Significant retirement savings to deploy (>$50k)
Buying a franchise or main street business
Want to avoid SBA loan interest costs
Business expected to be profitable (not loss-generating)
Long-term hold — not planning a near-term asset sale exit
Note on "Roth ROBS": Rolling Roth funds into the new 401k plan is technically a Roth-to-Roth rollover (tax-free), but the C-Corp's investment returns still accumulate inside the Roth 401k. This gives tax-free growth on the business equity — but all the same C-Corp compliance burdens apply.
Self-directed passive investment with operator in control
You invest capital (personally or through an entity) into a business or real estate deal where a third-party operator manages day-to-day operations. You receive K-1 income/loss as a passive partner or LLC member.
No SE tax Flexible structure Passive loss rules apply Low compliance

Common structures

LP (Limited Partnership) — you are LP, operator is GP. Passive by design. LTCG on exit if >1 yr hold.
LLC (multi-member, partnership tax) — K-1 income flows through. Need to document lack of material participation.
S-Corp as investor — S-Corp invests into LLC/LP; limits basis issues and provides payroll flexibility.
Real estate syndication — bonus depreciation, §1231 gains, §469 passive loss groups.

Tax mechanics — Year 1

No SE tax / self-employment tax on passive K-1 income
Year 1 losses are passive — suspended unless you have other passive income
At-risk rules (§465) limit deductions to capital contributed + guaranteed debt
Real estate: bonus depreciation / §179 can create large paper losses
LTCG rates on disposition (20% federal for high earners)
NIIT (3.8%) applies to passive income over threshold

Passive activity loss rules — §469 quick reference

Passive losses can ONLY offset passive income — not W-2, not active biz income
Suspended losses carry forward indefinitely
All suspended losses released upon full disposition of the activity
Real estate professional status (750 hrs + majority) unlocks active treatment
$25k passive real estate allowance for AGI under $100k (phases out $100k–$150k)
Material participation (7 tests) determines active vs passive
Grouping elections (§1.469-4) can consolidate activities
Combination: Personal + Roth SD IRA + Roth Solo 401k
Layer multiple investment vehicles for maximum tax diversification. Personal funds provide operating flexibility; Roth IRA/401k shelter gains from tax permanently for long-horizon positions.
Personal investment
No restrictions, full flexibility, LTCG rates on exit
Full control
Loss deductions available
Taxable gains
NIIT exposure
Roth Self-Directed IRA
LLC "checkbook control" IRA invests in private deals
Tax-free growth + exit
UBTI on operating biz income (trust rates)
Contribution limits: $7k/$8k
Strict prohibited txn rules
Roth Solo 401k (SD)
Higher limits, checkbook control via plan LLC
$69k+ contribution limit
Loan feature (50% / $50k)
UBTI still applies
Must have self-employment income

UBTI / UDFI — the critical gotcha inside retirement accounts

UBTI — Unrelated Business Taxable Income
Triggered when IRA/401k invests in an active operating business via a pass-through entity (LLC/partnership)
Tax rate: trust/estate rates — 37% on UBTI over ~$14.9k (2025)
Solo 401k has $1,000 UBTI exemption per year
Real estate rental income is generally excluded from UBTI
C-Corp blocker entity eliminates UBTI (dividends not UBTI)
UDFI — Unrelated Debt-Financed Income
Triggered when IRA borrows to invest (leveraged real estate)
Pro-rata portion of income/gain attributable to debt is subject to UBTI rates
Solo 401k is EXEMPT from UDFI on real estate under §514(c)(9)
This is a key advantage of Solo 401k over SD-IRA for leveraged real estate

Prohibited transaction rules — §4975

Cannot invest in a business where you (or family) own >50% or serve as an officer/director
Cannot personally guarantee loans made by the IRA
Cannot provide services to the IRA-owned entity for compensation
Violation = entire IRA treated as distributed in Year 1 — full tax + penalty
You can invest in a business where you own <50% and are not a fiduciary
Best use case: passive minority investments, real estate, private lending

Year 1 tax impact modeler

$500,000
−$50,000
37%
$0
ROBS / C-Corp
Entity-level tax owed
—
Personal tax impact
—
Year 1 cash impact
—
Passive + Operator
Deductible loss (Year 1)
—
Tax savings realized
—
Suspended losses c/f
—
Roth IRA / Solo 401k
UBTI tax (if operating biz)
—
Tax-free growth protection
—
Personal tax impact
$0
Model uses simplified assumptions. ROBS modeled on C-Corp with §11 21% flat rate. Passive loss modeled on §469 rules. UBTI modeled on trust tax rates (37% over ~$14.9k). Consult engagement-level analysis for client-specific advice.

Select your scenario

Buying a business to operate
You will run it, take a salary, and grow the enterprise. Franchise, SBA acquisition, or startup.
Passive investment / minority stake
Operator runs it. You are LP or silent partner. PE-style deal or real estate syndication.
Real estate (leveraged)
BRRRR, syndication, NNN, commercial. Expects bonus depreciation and potential debt financing.
Portfolio of deals over time
Serial acquirer / investor. Wants to build infrastructure for multiple investments across deal types.