401k Business Funding – Personal Investment

Do I have to invest my personal funds in the new company?


If I elect to fund my business or franchise startup via a 401k Business Funding transaction, am I required to invest my personal funds in the new company?

If you employ a 401k Business Funding strategy to finance your new company, you are not required to invest any of your personal funds (i.e. money outside of your retirement account). However if the 401k owns 100% of the stock of the corporation, the assets of the corporation will be considered assets of the 401k plan under the Department of Labor’s Plan Asset Rules. In that case, the likelihood that the corporation will engage in a prohibited transaction will significantly increase. For this reason, it is recommended “best practice” that the 401k own less than 100% of the new company’s stock. While the other owner can be you, it can be another person also.

Visit 401k small business financing for more general information.


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