It’s one of the most-searched questions by aspiring business buyers: can I use my retirement savings to buy a business?

The short answer is yes — in both Canada and the US. But the mechanics, the tax implications, and the risks are very different depending on which side of the border you’re on. And doing it wrong can cost you tens of thousands in unnecessary taxes and penalties.

The US has a specific mechanism called ROBS — Rollover for Business Startups — that allows you to use 401(k) or IRA funds to buy or start a business without paying early withdrawal penalties or taxes.

How it works:

1. You create a new C-Corporation
2. The C-Corp establishes a retirement plan (a new 401(k))
3. You roll your existing 401(k)/IRA into the new plan
4. The new plan uses those funds to buy stock in your C-Corp
5. The C-Corp now has cash to buy or invest in a business

The pros:

• No early withdrawal penalty
• No income tax on the rollover
• You can combine ROBS with SBA loans for larger acquisitions

The cons:

• Must be a C-Corporation (not an LLC or S-Corp)
• Ongoing compliance requirements — the IRS watches these closely
• You’re putting retirement savings at risk if the business fails
• Setup costs of $3,000-$5,000 through a ROBS provider

Canada doesn’t have a ROBS equivalent. You can’t directly roll an RRSP into a business. But there are still ways to use retirement savings:

Option 1: Withdraw from your RRSP
You can withdraw RRSP funds at any time, but the withdrawal is treated as taxable income. Withholding tax applies (10-30% depending on the amount), and the full amount is added to your income for the year. If you’ve been laid off and your income is lower than usual, the tax hit may be manageable.

Option 2: Self-directed RRSP investments
A self-directed RRSP can hold certain qualifying investments, including shares of Canadian-controlled private corporations (CCPCs) — but the rules are strict and you need professional advice to avoid prohibited investments.

Option 3: Use other registered funds
The Lifelong Learning Plan (LLP) allows RRSP withdrawals for education, which could fund business-related courses or certifications. The Home Buyers’ Plan (HBP) only applies to housing, not businesses.

Just because you can use retirement savings doesn’t mean you should. Consider:

• How close are you to retirement? 
  If you’re 50 and buying a business you’ll run for 10-15 years, the growth potential may far exceed what your 401(k)/RRSP would earn in a mutual fund. If you’re 62, the calculation is different.
  
• How much of your total savings would this represent? 
  Never put 100% of your retirement into one asset. Diversification matters even when you’re the CEO.
  
• Do you have other funding sources? 
  Severance, home equity, personal savings, and seller financing might cover most of the acquisition — leaving your retirement funds intact.

Get professional advice first

This is not a DIY decision. Before touching retirement savings to fund a business acquisition:

1. Talk to a CPA or tax advisor who understands business acquisitions
2. If in the US, consult a ROBS provider who can walk you through setup and compliance
3. If in Canada, consult an advisor who understands CCPC structures and Holdco strategies (Jamie covers this in detail in Own Your Next Job)
4. Model the tax impact before withdrawing anything

The right structure can save you tens of thousands. The wrong one can cost you just as much.

For a deeper dive into structuring business ownership for tax efficiency and wealth building — including the Holdco strategy — see Chapter 8 of Own Your Next Job.