The economy is looking strong, and it’s reflected in retirement funds. Fidelity reports the average 401(k) balance has grown 466 percent in 10 years, with an average balance of $297,700. That’s a lot of money waiting to be used.
What does this have to do with your business? Your retirement account contains money you’ve earned and saved. If you’re thinking about starting a business, you can use the money you’ve been saving from your previous job(s) to fund startup costs for a new business or franchise, to purchase an existing business or franchise, and even to be used as working capital.
Let’s explore how you can use your retirement savings to help you build your entrepreneurial dream.
Method 1: Get a 401(k) loan
Depending on how your 401(k) is structured, you may be able to borrow the lesser of half your vested balance or $50,0000. The loan does come with interest, but since you’re borrowing from yourself you’re also paying the principal and the interest back to yourself.
This method can make sense for business owners who don’t need a lot of money to get started and who are able to continue working, and continue contributing to their 401(k), while setting up the business. But, again, this is a loan and is not considered a debt-free option.
Method 2: 401(k) Rollover as Business Startup (ROBS)
ROBS also allows you to access funds in a 401(k), IRA or other eligible retirement plan without penalty and without incurring any debt at all. Recommended for business funding needs above $50,000, rollover funds can be used to purchase equipment, produce inventory, handle other expenses and even pay salary to yourself.
There are a few first steps for establishing your business with ROBS. First, you must structure your business as a C-corporation. Then, a new retirement plan must be created through the C-corporation. Third, the funds will “rollover” from existing retirement accounts into your C-corporation’s retirement plan. The new 401(k) then purchases stock in the corporation, allowing the business to be cash-rich and debt-free.
Since you’re investing your retirement funds in your business, you have control over your money and how it works for you. Funding is secured fast and is usually available in three to four weeks. ROBS are safe, proven and sanctioned by the Internal Revenue Code, and they optimize business equity and value, putting your business on the right path from the start.
If you’re considering a 401(k) Rollover to fund your business or franchise, Tenet Financial Group is here to guide you every step of the way. From forming a C-corporation to investing in stock, we’ll lead the process and let you focus on your business. Our team has eight combined decades of experience doing just that!
Contact Tenet Financial Group today at (888) 901-3335 to learn more.