Inc Well | Small Business Advice for Chicago Entrepreneurs
A how-to blog for Chicago business

How to Use Retirement Funds for a Startup

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    NEWSLETTERS

    Niki Wright/flickr

    All ready to go with your start up idea but lacking funds? If your startup doesn’t have the need for extensive venture capital, may not yet qualify for a small business loan, and can’t obtain angel investor funding, you probably feel a little stuck.

    There are other solutions, albeit risky ones. 

    When entrepreneurs can’t get outside funding, credit cards and retirement plans become the primary resources. There are ways to use IRA and 401(k) funds to finance your start-up business, but it isn’t as simple as writing yourself a check; there are several legal steps. 
    Think about rolling over the money into a corporate retirement account that allows you to invest in the business. In this case, you set up a C corporation and establish a corporate retirement account. You can then roll outside retirement accounts into the corporate plan and invest the money in the company’s stock. Since you are buying shares of your own business, you’re investing back into it. 
    As usual, get outside help. Most entrepreneurs need a financial planner to do this – don’t go it alone unless you have extensive knowledge. There’s no IRS ruling authorizing the full process, and they’re, of course, paying close attention.
    Keep in mind - you’ll end up dipping into your savings if your business hits hard times, so starting your business by depleting the funds is risky. The bottom line is only you know what your risk tolerance is, and how much of a safety net you’ve got.
    Read more here.