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Leveraging Retirement Funds to Start a Business
If you're looking for ways to finance a business, you've probably already investigated the obvious methods loans from your personal bank, family or friends; credit cards; Small Business Administration loans, etc. But there is a lesser known option that can provide you with the funding you need to get down to business... and it's right under your own nose.
It might be because of its awkward name that you haven't heard of a Rollover for Business Start-up (ROBS); that's why most simply call it a 401(k) rollover. By using such a structure, you can leverage the power of your existing retirement funds to invest in a business or franchise.
Here's how a 401(k) rollover works:
- The business owner forms a new corporation.
- Said corporation sponsors a new 401(k) plan.
- Business owner rolls funds from their existing retirement account into the new 401(k).
- New 401(k) purchases stock in the corporation, which can then invest in a business or franchise.
401(k) rollovers are a perfectly legal and viable option for eligible business owners to consider. Made legal by the Employee Retirement Income Security Act of 1974, 401(k) rollovers don't trigger a tax penalty when set up properly, and they usually only take a month to finalize, allowing you to get on your way to business success faster.
Using retirement funds to invest in a business allows you to start your entrepreneurial journey completely debt-free. Since it's not a loan, you won't need to make monthly payments to a bank, and there are no pesky interest rates to suck up your money. What's more, this option can also be combined with other methods of business financing, allowing you to more easily meet your target amount.
By partnering with an experienced ROBS provider, a 401(k) rollover can be a simple and straightforward process. Working with an unexperienced firm or attempting to go it alone without ERISA knowledge could result in hefty tax penalties or closure of the plan. When choosing a financing firm to work with, do your homework and select the organization that offers plenty of experience in the structure.
Thousands of entrepreneurs have successfully used 401(k) rollovers to fund their new business or franchise debt-free. Will you be next?