Using Your 401(k) to Buy a Business

Many potential business buyers are surprised to learn that there is no tax penalty when you use part or the full amount of your 401(k), 403(b)s, IRA or other retirement funds to buy a business. The Federal government does not view this as an early withdrawal. Rolling these funds over saves you thousands in loan interest payments, allows you to start your business debt-free or can provide you a strong base of investment capital. Ultimately, however, it generates real value for you and your family.

Instead of investing your money in mutual funds or stocks of a business in which you have no management control, invest your savings in your business and grow your equity.  Investing your retirement funds in an established, proven business is essentially investing your money in yourself. This business becomes your retirement fund. You can initiate a company-sponsored retirement savings program to benefit yourself and your employees as well as grow the company into becoming one of your most important assets.

When it comes time to exit your business, SUNBELT NEW MEXICO can help you on the sell-side of the transaction. With good management and strong growth, expect t to increase in value over the years and be able to provide you with an attractive nest egg.

You can speak with your financial advisor about the best way to proceed with rolling over all or part of your retirement funds to purchase a business. We can also refer you to lending institutions that specialize in this type of financing. In a nutshell, it usually involves opening a new 401(k) plan under your new corporation and rolling over your existing 401(k) funds to the new plan. Since both accounts are tax-exempt, you avoid any penalty for an early withdrawal.

We sell businesses every month that allows former business owners to comfortably retire or move on to a new business venture.