Can I Use My 401k To Buy A Business?

There is no question that the current market has made it difficult for small businesses to obtain loans to purchase a business. Quite simply, traditional lenders have cut down significantly the number of loans granted to entrepreneurs.  However, you don’t have to put your entrepreneurial aspirations aside!  Alternative forms of financing such as 401k small business financing or rollover as business startup (robs) can help you buy your own small business and do what you love while using money you may already have! 

Can I use my 401k to buy a business?

Yes. A ROBS transaction allows you to invest your 401k in non-traditional investments such as: Existing businesses, New Business Start-ups, Franchises, Non-Franchises, Real Estate, and Non-Traditional Investments. 

Do I incur a penalty if I use my 401k to buy a business?

A ROBS business financing transaction is a small business or franchise financing strategy whereby an individual uses retirement assets, such as funds in a 401k, to capitalize new or existing businesses without incurring distribution taxes or penalties.

How common is the ROBS transaction?

For thousands of startups, these rollovers are working. Last year alone, 4,050 entrepreneurs elected to finance a business with 401k funds --60 percent of them franchises, according to FRANdata, an independent research firm. Many are shirking traditional corporate investments and are making the decision to invest in themselves and their passions!

How do I get started?

Once you have made the decision to “invest in yourself” and you have identified the “business-for-sale” of your dreams, the process is actually quite straightforward. Check out 401ksmall business financing page at 

http://www.mysolo401k.net/401k-small-business-financing.html

for more information!

401k Small Business Financing | Passive Investing | Operating Business

QUESTION: Can I use the 401k small business financing concept to finance my own passive investing business? I would be day trading stocks and futures and commodities inside an LLC.

Thanks, JL

ANSWER:   Because the 401k small business financing concept is for those seeking to finance an existing or new business that will be offering operational services (e.g., restaurant, retail store, online store, etc.) not passive investment services such as day trading, it does no appear that you would qualify.

However, you may want to consider establishing a self-directed IRA LLC to trade equities and commodities. Under a self-directed IRA LLC, your IRA will fund a newly formed LLC of which you are listed as the manager and can therefore direct the investments.

401k Small Business Financing Providers

The use of retirement funds such as IRA and 401k funds to finance an operating business venture has grown in popularity the last few years as a result of unfavorable economic times, resulting in workers deciding to venture into operating their own business. These new entrepreneurs are using 401k small business financing, a term used to describe the use of 401k or IRA funds to finance an operational business. 

With billions of dollars tied up in IRAs and 401k plans, the number of 401k  providers offering 401k small business financing services continues to steadily grow each year; therefore, when deciding on a 401k provider, be mindful of the following:

401k providers range from, 401k administrators, accountants, attorneys, actuaries,  and combination of all of these.

Because 401k small business financing is more complex than a regular 401k, one that is used to invest in stocks and mutual funds, it is best to work with a 401k provider that has 401k administrators on staff and an attorney on staff. This will ensure that all of your bases are covered. The 401k administrator will handle the day to day 401k administrative functions while the attorney will handle the compliance aspect of the 401k plan.