The Employee Retirement Income Security Act of 1974 gave rise to IRA's and 401(K)'s.  But a little known fact is that Act also allowed those account holders to buy their own businesses using retirement funds before retirement age and without early distribution penalties.

 

The purchase is made as an account investment, like if you were purchasing stocks or bonds and uses a structure of a customized 401(K) and ssetup of a C corporation.  This structure also allows these funds to be used for the downpayment of a loan and can be combined with other existing capital for purchases.

 

Capital or the lack of capital always plays a very important role when an aspiring entrepreneur is trying to figure out how he can come up with the necessary funds to buy that franchise and be on his way to independence.  Which is why using retirement funds for startup capital is so attractive to many franchise owners.  The savings from not having an interest rate on a loan could be sizable and further allows the business owner to take those extra funds and reinvest in his business and also the retirement account that he borrowed the funds from originally.

 

However, there are strict guidelines that must be followed when using this business funding strategy.  Some of the requirements include the owner must take a salary, particpate in the company's 401 (K) plan, offer employees the option to enroll in the same plan and most notably, work at least 1,000 hours over the course of the calendar year.

 

Furthermore, this business funding method requires strategy and complex transactions including the setting up of a C corporation and rolling over of various retirement accounts.  Because of this, seek the expertise of a seasoned and qualified professional in this particular financial segment.