by Jack Snyder, Manager
While having your own business brings many practical and tangible advantages, it is the feeling of success and personal fulfillment that makes this such a popular ambition. However, raising the necessary capital could be a challenge in the current credit environment.
For some, their 401(k) or other retirement saving account represents a significant portion of their net worth. Often retirement accounts are bypassed because of the perceived penalties and interest costs associated with the process. What many do not realize is that these retirement-saving vehicles may present a viable funding alternative without receiving a taxable distribution or incurring penalties.
There are several steps required in using your retirement monies from a 401(k) or other retirement savings account to acquire a company. The steps involved should be carefully considered using the professional advice from knowledgeable legal and accounting advisors. It is, however, a method of freeing up equity that can be leveraged, with additional funding such as SBA loans, to acquire a company.
In summary, you form a new corporation which then sponsors its own 401(k) or other retirement plan which allows stock ownership. You then rollover your retirement monies in your current account to the newly formed corporation’s program. After your new retirement plan invests in the corporation by purchasing its stock, it is your 401(k) that owns the corporation.
Considering the expense of borrowing money, using your retirement account monies could save you significant interest expense. Eliminating interest costs by having your retirement account function as an equity investment would also free up the company’s monthly cash flow and improve the likelihood of your business’ success, resulting in significant tax-deferred retirement growth.
NuVescor’s team of experts is ready to assist you in accomplishing your life and financial objectives as they relate to your business transaction. Please call us for a confidential and free consultation to help evaluate your options.