Using Retirement Funds to Finance your Franchise

Financing is a crucial step in any new business proposition.  Did you know that you can invest your existing retirement funds in a new franchise operation—without taxes or penalties?  Unlike a loan with monthly payments, you use pre-tax dollars to fund your business.  You also gain business equity and an improved cash flow position from the start and can use the funds to receive a salary during startup.

401K fund

The IRS refers to this strategy as a Rollover as Business Startup (ROBS).  Here are the basic steps you can use to fund your franchise:

Step 1:  Establish a new C-Corporation

Step 2: Corporation sponsors a new 401k

Step 3: Rollover of existing retirement funds into 401k

Step 4: 401k funds are invested in Corporation

The IRS has clearly acknowledged that this is an acceptable strategy, however, it also very specific guidelines for how to handle this sort of rollover.  You can find them here.  Of course, you’ll want to work with an experienced professional to help you understand the compliance requirements.

To learn more about 401K or retirement rollover financing for your franchise, check out this recent blog post by our partner, Benetrends.

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