401K Retirement Funding
401K Retirement Funding refers to a financing strategy where individuals use funds from their 401K retirement accounts to start, grow, or invest in a business. This is typically facilitated through a process called Rollover for Business Startups (ROBS), allowing business owners to leverage their retirement savings without incurring early withdrawal penalties or immediate tax liabilities.
Key Features of 401K Retirement Funding:
No Early Withdrawal Penalties: Funds are rolled over into a new business venture instead of being withdrawn, avoiding penalties.
Tax-Deferred Investment: The rollover is structured to defer taxes, allowing the business to grow without immediate financial burden.
No Debt Financing: This option doesn’t create new debt, as you're using your own retirement savings.
Startup and Growth Capital: Ideal for funding new businesses, expanding operations, or covering operational expenses.
Legal Compliance: Must be set up properly to adhere to IRS and ERISA (Employee Retirement Income Security Act) regulations.
Accessible for Entrepreneurs: Available to individuals with eligible retirement accounts, like a 401K or certain IRAs.
How 401K Retirement Funding Works:
Set Up a New C Corporation: This structure is required for compliance with ROBS regulations.
Create a New 401K Plan: A new retirement plan is established under the corporation.
Roll Over Existing 401K Funds: Funds from the individual’s current 401K are transferred into the new retirement plan.
Invest in the Business: The retirement plan purchases stock in the C Corporation, providing the business with capital.
Who Can Benefit?
Entrepreneurs looking to start a new business.
Business owners needing additional funding for growth or expansion.
Individuals wanting to use personal savings without taking on traditional debt.
