Use Your 401K to Purchase Your Franchise Business

Published on
July 11, 2022

Are you looking to buy a franchise business to fulfill your dream of owning your own company and being your own boss? But do you have the financial means to make that dream possible? Have you thought to use your 401K to purchase your franchise business?

So maybe you have some money saved away but perhaps not enough to buy your dream franchise business. Your first thought might be to get a small business loan. But there are other ways to finance that new business; using a 401(k) to buy a business is an option many aren't familiar with. Of course, in most cases, traditional IRAs and 403(b) are also eligible.

There are many benefits to using your retirement account for funding your franchise. Let's review them:

Using a 401K is Tax-deferred and Penalty-free!

If correctly done, unlike withdrawing cash, you can use your 401(k) without any penalties and income taxes deferred at the time of investment by setting up what is called a Rollover-as-Business-Startup (ROBS)

Your Stock vs. Stock Market Risk

Most 401(k)s are invested in the stock market. You can think of a ROBS as an alternative stock where your 401(k) owns the stock in your new company. Think about it this way, your 401(k) becomes the owner of stock in your own business, not the stock of someone else's business. If you are confident in yourself, this approach can maximize your wealth and available funds for retirement.

Use Your 401K Debt-Free and Interest-Free

Using your retirement account to start your franchise business means you don't owe anyone. There are no monthly loan payments and no interest due. No loan criteria to meet to get a loan. Nobody is looking over your shoulder. You maintain total control.

Using Your 401K Has No Risk to Your Home

Most loans require you to put your assets, usually your home, up as collateral. You'll need an excellent credit score, a solid business plan, and strong earnings potential even with an unsecured loan. While you put a risk on the value of your 401(k), is it any more or less risky than how it is currently invested?

Invest in Yourself. Put Yourself in Control.

When you take out a loan, you've taken on a partner - the bank! Of course, that comes with all the headaches and hassles of meeting your ongoing loan payments. Instead, consider using your 401(k) as an investment in yourself - you're the boss.

Reinvest in Your Business

You're free to put the money you save, being debt-free, back into your business without loan payments hanging over your head. With the money, you're not forking over to a bank or other lender; you then can afford to invest in your business - more inventory, marketing, advertising program, employee training - you get to decide, and the possibilities are limitless.

Maximize Your Wealth Using Your 401k

Using a 401(k) to finance a franchise makes some people nervous. "But what about my nest egg?" Here's the thing: leaving your retirement money in a stranger's hands, you give up control. And we've all seen, over the past 20 years, large institutions that aren't concerned with you and me and what we'll live on in our retirement years. The person who knows what's best for you is you.

How Does It Work?

The 401(k) ROBS program has been around since 1974, but it's not that well known. It's a legal way to obtain start-up capital to buy your franchise business.

So what does it take to set this all up? It's best to use professionals to do this to ensure you do it correctly and properly. A professional will help you set up a new C-Corporation, which is the required legal business structure. This corporation will set up a 401(k) plan for you to roll over your existing 401(k) into. This new 401(k) plan then purchases the stock of another corporation you've set up to invest in your new franchise business.

Isn't it time to put your money to work for you? Invest in your future. Elevate your life, legacy, and your pursuit of happiness.

Let's Discuss 401k ROBS and Other Franchise Funding Options

If you want more information on setting up a 401(k) Rollover Business Start-up (ROBS), here is more information from our partner at Benetrends. Or schedule a call with our franchise expert, Jay Friedman, to find the perfect franchise that meets your personal interests and financial goals.

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