Use a Thrift Savings Plan for ROBS

A ROBS transaction keeps the actors separate. The participant owns a TSP account. A newly formed or existing C corporation sponsors a qualified retirement plan. If the TSP distribution is eligible for rollover, TSP or its record keeper sends eligible assets to that receiving plan. The plan then records the participant's rollover account. Only after the rollover is accepted, valued, and reconciled does the plan purchase stock of the C corporation. The corporation receives cash for operating or acquisition costs, and the plan receives employer stock whose value depends on the business.^[1][4][7]

The positive money flow is TSP to receiving qualified plan, then plan trust to C corporation in exchange for stock. That is why custody, participant ledger entries, plan documents, stock subscription documents, and corporate records all have to describe the same transaction. A TSP loan, personal withdrawal, or direct purchase of a business by the participant is a different structure and should not be counted as this rollover-and-stock-purchase path.

Start with the specific TSP account, not a generic retirement-account label. Confirm current federal civilian service, current uniformed service, separated civilian service, separated uniformed service, beneficiary status, court-order/payee status, and whether the participant has separate civilian and uniformed-service TSP accounts. The DOL/FRTIB audit states a post-separation withdrawal can be made only from the account associated with the participant's separation, and if both civilian and uniformed accounts have separation dates, each account can be handled separately.^[3]

A separated participant with a vested balance can request post-employment withdrawals from the TSP account associated with that separation. Current employees and current service members may still have an age-based in-service path at age 59½ or older. That means federal-service separation is not always required, but the path has to be supported by the participant's actual TSP status and current TSP process.^[2][3]

Beneficiary accounts, court-order payments, outstanding loans, required minimum distributions, and installment payments add separate limits. Those facts can change whether any amount is available, whether it is eligible for rollover, or whether it can be used as ROBS capital at all.

TSP withdrawal availability asks whether TSP will pay money out under a current official path. ROBS funding asks a narrower question: is the amount an eligible rollover distribution that can enter the C corporation's qualified plan? IRS guidance excludes required minimum distributions, loans treated as distributions, hardship distributions, excess contribution corrections, certain periodic payments, automatic-contribution opt-outs, insurance payments, employer-security dividends, and S corporation deemed distributions from retirement-plan rollover treatment.^[4][5]

A financial-hardship in-service withdrawal therefore fails the ROBS rollover-capital screen even if TSP can process the withdrawal. TSP loan proceeds also fail: a loan is not a rollover. If a loan is later treated as a distribution or loan offset, the rollover analysis is different and has to be reviewed before the amount is counted.

A direct rollover is usually the cleanest route because the payment is made to the receiving plan or IRA and is not subject to mandatory withholding. If the eligible retirement-plan distribution is paid to the participant personally, the participant has 60 days to complete a rollover and mandatory 20% federal withholding applies. The receiving qualified plan is not required to accept rollover contributions, even if the TSP can distribute the money.^[4][5]

Traditional TSP, Roth TSP, and tax-exempt uniformed-services contribution records should be separated before any rollover request. FRTIB rollover regulations say traditional and Roth portions require separate elections and are rolled over separately. For Roth money, the TSP record keeper provides Roth begin-date and Roth contribution information to the receiving plan or Roth IRA trustee. Tax-exempt contributions can be rolled over only if the IRA or plan accepts such funds.^[1]

A Roth TSP balance is not a pre-tax ROBS funding account. IRS designated Roth guidance says designated Roth accounts require separate accounting, and an eligible rollover distribution from a designated Roth account may roll only to another designated Roth account or a Roth IRA. It may not be rolled to a traditional IRA or another pre-tax account in a plan.^[6]

For ROBS, this means the receiving plan document and administrator must be able to accept and separately account for the source being rolled in. A pre-tax-only receiving plan cannot solve a Roth TSP problem by relabeling Roth money as traditional money.

The following examples are decision illustrations, not suitability recommendations. They assume the TSP source documentation is current, the receiving plan has reviewed its own plan document, and the C corporation stock purchase has a separate valuation and subscription record.

The main ROBS benefit is that eligible rollover money can capitalize the corporation without a personal taxable withdrawal or loan payment. The tradeoff is that the retirement plan exchanges diversified assets for stock in one privately held C corporation. If the business performs poorly, the plan's employer stock can lose value even when the rollover was handled correctly.^[7]

ROBS also creates ongoing plan and corporate obligations: plan administration, employee eligibility, nondiscrimination and coverage concerns, valuation support, Form 5500 or 5500-EZ analysis, corporate tax filing, payroll, stock records, and correction work if an invalid rollover is accepted. IRS ROBS materials specifically discuss business failures, missing Form 5500 or Form 1120 filings, valuation problems, promoter fees, and limits on employee access to employer stock.^[7]

Compare the TSP route with SBA 7(a) financing, seller financing, equipment financing, personal cash, a smaller partial rollover, waiting until separation, or using only non-Roth eligible amounts. The right comparison is not just taxes avoided today; it should include debt service, collateral, personal guarantees, setup and administration fees, remaining retirement diversification, business risk, working capital, and exit consequences.

Before assets move, gather the TSP account statement, service-status record, traditional/Roth/tax-exempt balance detail, loan and installment-payment records, RMD information, court-order or beneficiary documents if relevant, current TSP withdrawal instructions, the receiving plan document, rollover acceptance procedures, financial-institution instructions, participant certification, C corporation formation records, plan trust or custodial account details, valuation support, stock subscription agreement, share issuance records, and board approvals.

Ask the receiving-plan administrator to state in writing whether the plan accepts the specific TSP source and tax character. Ask the ROBS provider or attorney how the plan will record traditional and Roth sources, whether tax-exempt contributions are accepted, when the stock purchase is authorized, and how an invalid rollover would be corrected. A qualified independent professional should review actual TSP account records, service status, rollover notices, Form 1099-R reporting, receiving-plan terms, valuation, corporate records, and household risk capacity.

This page is general educational information, not individualized legal, tax, investment, valuation, fiduciary, retirement-planning, securities, business or financial advice.

These answers summarize the source-supported boundaries most likely to change a TSP-for-ROBS decision.