Tips for Starting a Business With 401(k) Funds

Are you looking to leave the rat race behind and start your own business? Small businesses can see great success with proper funding and a solid business plan. While small business loans are a popular option for new owners looking to grow quickly, but you may have some funds of your own tucked away.

Use the 401(k) funds from your existing job to get your new business off the ground. How, though? Read on for these tips for starting a business with 401(k) funds.

What Is 401(k) Financing?

Finance your business with your own 401(k) retirement funds by using a ROBS—a Rollover for Business Startups. Essentially, you’ll create a 401(k) program in your new business’s name and roll your own existing funds into the new program. It’s not a loan or a withdrawal; you’re just moving your own money from one place to another without incurring fees or tax penalties.

Will It Work for Me?

Financing a new business with an existing 401(k) is a great option for some, while it may not work for others. In order to qualify for a ROBS, you must:

  • Have enough funds. 401(k) financing works best if you have more than $20,000 in retirement assets.
  • Work full-time in your new business. If you plan to stay at your current job while starting your business on the side, you will not qualify for a ROBS.
  • Choose a provider. The financing process will be much smoother if you’ve got an expert on your side to ensure that you remain compliant.

How the Financing Works

When you use a ROBS for your 401(k) small business financing, your first step is to set up a C corporation.

Next, create a self-directed 401(k) program for your C corporation. This is where your existing 401(k) money will go when you roll it over, and you’ll retain complete control over it.

Once you’ve rolled that money over with the help of your ROBS provider, purchase stock in your new corporation to invest the funds directly into your business.

Now that you know more about how the financing process works, talk to a financial advisor about what you can do with your 401(k). Your retirement funds could be the key to your business’s growth. These tips for starting a business with 401(k) funds will point you in the right direction with the assistance of Pango Financial.