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8 Reasons to Use Your 401(k) to Fund Your New Business

401k rollover funding ROBS Funding

When you are looking at options to fund your small business, and if you have retirement funds, you should consider using the ROBS arrangement. 

ROBS (Rollover for Business Startups) is an innovative approach to business funding. Using a ROBS arrangement, business owners leverage existing 401(k) funds to finance their business purchase or expansion. 

As seen in the recent post, ROBS: The Best-Kept Secret for Funding Your Dream Business, the straightforward approach uses your existing retirement assets without incurring some of the tax disadvantages that other withdrawals would incur. 

Tax advantages are just one of eight reasons to use your 401(k) to fund your new business. 

1. No Loans 

When you use a traditional commercial lender for your small business financing, you are going to be taking out loans that require mandatory repayment schedules and, often, steep interest rates. There are no loans with the ROBS model. Your assets can be used the way you need them to start or grow the business, tax-deferred and penalty-free. 

2. No Early Withdrawal Penalties 

Most retirement plans have considerable penalties if you make a withdrawal before a certain age (often 59.5). The IRS also will impose a 10 percent penalty for early withdrawal and plan administrators will hold back portions of your withdrawal for federal and state taxes. This is not so when using the ROBS method.  

3. No Ownership Loss 

When you bring on investors, you often need to give away a portion of the profits. When you use your own 401(k) assets, you will not have to give up any ownership stake in your business now or in the future. 

4. No Credit Risk 

When you use your personal credit cards, a second mortgage on a home, or apply for commercial loans, you are exposing your personal credit to risk. There are no credit applications necessary to roll over your existing 401(k) funds. Your credit remains secure.  Plus, you can use a ROBS, regardless of your credit score.  

5. No Debt 

Taking out loans means taking on debt that can put your new business in a hole even before the doors open or the website goes live. Knowing you can invest money in important things – inventory, employees, marketing, and equipment – means you will have more flexibility, and cash, to make financial decisions with your hard-earned cash. 

6. Faster Access 

You can use your new funds sooner than with traditional lending or investment vehicles. With the 401(k)-funding strategy, you may gain access to your money in as little as 10 business days. 

7. Retain Retirement Funds 

Using the ROBS approach, you can use a portion of your existing retirement funds. You do not need to invest all of your 401(k) or IRA funds in the new business venture in order to reap the benefits.

8. Most Plans Qualify 

Nearly all types of retirement plans count for a ROBS account, with the exception of Inherited and Roth IRAs. 

If you are you ready to unlock your funding potential, Benetrends Financial is the key.  As the company that pioneered this approach, Benetrends can help you leverage existing funds to make your business goals come true when you download The Definitive Guide To 401(k)/ROBS Business Funding. 

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