The loss of retirement benefits from using these rollovers compounds over time, which could cause entrepreneurs to fall drastically behind on their savings.

At St. Louis-based Plancorp, advisors do not use these rollovers for business start-ups with their clients, said Susan Conrad, chief client experience officer.

“Most of the time, the 401(k) plan is the largest asset for investors,” said Conrad. “A rollover for business start-ups allows individuals to leverage this balance for start-up costs without taking a cash distribution, which creates a taxable event. This all sounds great, but as with most things, there are risks to consider. The most obvious is that you are putting your retirement nest egg in jeopardy if the start-up fails.

“Over 75% of start-ups fail, so this is a real consideration.”

A business start-up rollover requires prospective entrepreneurs to have $50,000 saved in a retirement account that is not offered by a current employer. They will have to be a full-time employee of their new business after going through the ROBS process.

To accomplish the rollover, entrepreneurs first have to set up their new businesses as C corporations, which can be a costly and difficult process. Then they must establish a 401(k) plan that allows the sale of company stock. ROBS providers like Guidant also offer 401(k) administration to help streamline the process, but often at a price much higher than a business owner could find on the open market.

Typically, companies charge $5,000 to help entrepreneurs set up a ROBS, not counting the cost of plan administration.

Retirement funds are then rolled over into the new 401(k) and used to purchase private stock in the C corporation, infusing cash into the new company to allow the purchase or establishment of a business.

The use of company stock in the 401(k) distorts an entrepreneur’s retirement asset allocation, noted Don Hance Jr., a financial planner and principal at LifeSighted in Pacific Palisades, Calif.

“The difference is that this is a much riskier venture,” said Hance. “This is a start-up, not at all like holding Wells Fargo or Microsoft company stock in your 401(k). A big company is likely to stay in business, but with these ROBS you have to be prepared to lose everything.”