Many people dream of becoming entrepreneurs, and often the biggest...
Letting technology do the heavy lifting for certain monotonous tasks...
For many startups, the summer months can be...
Tax season often triggers stress and complexity—especially for...
December 10, 2021
Do you want to start a business but don’t have the funds or investors biting on your brilliant idea? If that’s the case, you may want to look at borrowing money from your 401(k) fund. This can prove a viable option as long as you understand the risks and have a strong repayment plan in place.
Consider tapping into your 401(k) for starting a business if:
Setting yourself up with rollover for business startups is complicated and includes future risks. So, before you use your 401(k) to start your business, weigh these pros and cons:
Pros:
Cons:
“The unfortunate reality is that most business owners will initially have to fund their businesses from their own pockets,” says Mike Sims, owner of ThinkLions, who funded his business from his 401(k) account. He adds, “For most working individuals, their 401(k) may be the single largest asset that they have and their only option for funding the launch of their business.”
Fortunately, aspiring business owners can use an arrangement called rollovers as business startups to fund their business using their 401(k), without being assessed taxes or penalties.
In the term ROBS, “rollover” refers to the process of moving retirement funds from one 401(k) account to the new company’s 401(k) account, and then from the company’s 401(k) account to the company’s checking account.
Here are the steps to complete a ROBS:
– If your business is already registered as an LLC or other entity, you will need to reorganize.
– Choose the right retirement plan, depending on the number of employees and how you will compensate them.
– Rollover funds from your old retirement plan to the new one. The plan administrator will be able to assist you in this process.
– Use your retirement funds to buy stock in the corporation.
– Use the funds to invest in your business as per your industry rules.
Note: Whether you put the entire rollover into the hands of a financial services provider or do it yourself, you should consult a professional who can advise you based on your individual situation. A financial services provider that administers ROBS can help you stay on top of regulations and facilitate the process.
Here are a few key strategies to open a business using a 401(k) loan:
Our team is made up of seasoned professionals who bring years of industry experience to the table. You gain a trusted advisor who understands your business inside out.
Say goodbye to the hassles of hiring, training and managing in-house finance teams. You will never have to worry about unexpected leave of absence or retraining new employees.
Whether you’re a small business or a global powerhouse, our solutions scale with your needs. We eliminate inefficiencies, reduce costs and help you focus on growing your business.
For many startups, the summer months can be a dual-edged sword. On one hand, warmer weather and looming vacations can...
Tax season often triggers stress and complexity—especially for startups laser-focused on building products, acquiring customers, and scaling operations. Yet savvy...
The halfway mark of any given year is more than just a date on the calendar; it’s a valuable checkpoint...
For consumer goods companies, managing inventory efficiently is critical—not just for operations but also for financial health and risk management....
As more businesses transition to Software-as-a-Service (SaaS) solutions, data security and regulatory compliance have become top priorities. From handling sensitive...
For portfolio companies, whether backed by private equity, venture capital, or family offices, scalability is essential for maximizing value and...
Insights from a Consumer Goods Expert: Building Brands, Inventory Management, and the Power of Outsourcing In a recent conversation with...
Private equity deals are becoming larger and more complex, making financial preparation a critical part of the process. Take Novartis’s...
Biotech startups operate in a unique financial landscape, where securing grants, venture capital, and government funding is crucial for driving...