Most companies charge an initial start-up fee of $5,000 to service a ROBS transaction. Ongoing support services run at least $1,000 annually.

"Business is up 40% this year," says Leonard Fischer, CEO for BeneTrends. "We've done 1,500 [ROBS] plans with an average transaction of $175,000 for every type of business imaginable this year."

David Nilssen, the founder of Guidant Financial, says his company expects to write 1,500 plans by year's end, up about 30% from last year. The average amount of the ROBS transactions is $165,000, which is typically put down on a bank loan of $500,000 or less. Since Nilssen launched his company, he's done 4,500 plans that resulted in $2 billion in franchise loans.

"We are seeing a strong demand," he says. "The number of prospects inquiring about financing is up 60% over last year. We've talked to a number of tax attorneys and CPAs that want to familiarize themselves with the plans."

Using a ROBS transaction, Hal Mottet, of Lake Oswego, Ore., and a partner used $1.4 million of their retirement funds to finance the $3.5 million purchase of Empire Container Corporation in Carson, Calif., Bloomberg News reported. Last year, Ted Sarasin, a former technology manager with Chase Bank, used his retirement savings to start a Chem-Dry franchise in Red Oak, Texas, according to Guidant Financial.

Although ROBS can provide a cheap source of capital for new business ventures, at least one financial planner, Graydon Coghlan, president of the Coghlan Financial Group in San Diego, is skeptical. He says he would not recommend a ROBS transaction in this precarious economic and tax environment without a thorough review of a client's finances and business plan.

"They are taking on a huge risk with their retirement savings," says Coghlan, whose firm manages $500 million in IRA rollover assets. "You don't know how much follow-up capital the person has to maintain the business if it does not run smoothly."

Tax attorneys and CPAs also are concerned that the IRS may audit the businesses that use these transactions. Fines for noncompliance with IRS rules can run up to 115% of the amount withdrawn from the 401(k), plus ordinary income taxes.

"A ROBS transaction is a tax shelter whereby an individual uses pretax passive retirement assets, such as funds from a 401(k), to capitalize a new or existing business without paying taxes on the retirement assets," says Brian Weinstock, a principal with the St. Louis law firm Danna McKitrick. "It is a tax shelter that is established for the purpose of avoiding or evading federal income taxes."  

The IRS has expressed similar concerns. In June of this year, the agency's Employee Plans Compliance Unit said it would do follow-ups on ROBS transactions that have already been approved. The unit wants to be sure the companies remain in compliance with reporting and filing requirements.