If you are seeking to use your retirement funds for business financing and currently have retirement funds in various former employer plans and IRA accounts, the financing of the business can be done using solo 401k funds through a solo 401k participant loan or using the 401k business financing plan (also known as a ROBS 401k PSP Plan).

Method 1 Funding Own Business Using a Solo 401k Participant Loan

Using a Solo 401k Loan for Business Financing would allow you to borrow up to 50% of the balance (not to exceed $50,000) that you could use for business financing.  This option has a lower cost and would allow you to operate the business through an LLC or S-corporation but requires repayment of the loan(s) and is designed for a business with no w-2 employees who work more than 1000 hours per year.

Method 2 Funding Own Business Using the 401k Business Financing Plan

Funding you business via our 401k Business Financing (or rollover as business startup) would allow you to invest all of the retirement funds and does not require repayment but is a higher cost and would require operating the business as a a C-corporation.  The funds not invested in the business can be invested in equities.

QUESTIONS:

ANSWERS:

It is a two-step transfer process. First, the funds will flow from the existing retirement account to the new 401(k) sponsored by the new C Corporation. Then you will invest however much you want to in the stock of the C Corporation such that the funds will flow from the new 401(k) account to the business bank account of the C Corporation. The funds that are invested can then be used for any legitimate business purpose by the C Corporation. While you can make subsequent investments of 401(k) funds in company stock, each investment would need to be documented as a subsequent stock purchase which may require obtaining a valuation of the company to determine the fair market price per share (and moreover, if there any other employees participating in the plan at the time of the subsequent stock offering these individuals will be need to be given a chance to invest their 401(k) funds in company stock as well at the time of the subsequent stock offering).

403b QUESTION:

I am thinking about using my 403b funds to fund my business, can this be done and would like to know how the process works timing, and fees associated with it.

403b ANSWER:

While a 403b cannot invest in one’s own business, yes a 403b can be transferred to the business financing 401k provided you are no longer working for the employer that sponsors the 403b and the 401k would then be invested in your C-corporation.

Also, in order to use 401k retirement funds to finance your own business, the business has to be one that will offer goods or services. Therefore, a C-corporation that offers investments will not qualify, for example.

You will also be required to work as a W-2 employee for the C-corporation, and can thus draw a fair salary based on hours worked and what others in the same industry make. For more on the salary rules, please see the following: https://www.linkedin.com/pulse/20141011003951-361793377-robs-401k-business-financing-how-much-salary-can-i-make

Process, Timing and Fees:

• Process: We take care of everything needed to fund your business with your retirement funds including setting up the corporation and the 401k plan, assisting with the transfer of the funds to ensure that no taxes or penalties are incurred and then documenting the transaction with corporate records such as stock certificates, bylaws, etc.  Going forward, we provide all of the ongoing compliance support for the 401k plan including the annual 5500 filing, onboarding any eligible employees who wish to participate, keeping the plan up-to-date to ensure that it maintains its status as an IRS-approved qualified plan, mandatory plan testing, etc. 
  
• Timing: Typically about 15 business days depending on how long it takes the funds to be released by the current plan administrator.
• Fees: We charge a flat setup fee which includes everything to set up and fund your business with your retirement funds as well as the first 12 months of our ongoing compliance support for the 401k.  Starting 12 months later we charge an annual fee. For more information, please see the following link: https://www.mysolo401k.net/401k-business-financing/401k-business-financing-pricing/ 

QUESTION:

I found out about your company doing a google search. I am looking to use my 401k to start a business where I am day trading and investing the money into other business ventures.  The stock day trading would only be for myself and I wouldn’t have anyone’s money that I would be managing or trading.

I wanted to give you a little about my background.  Right now I am currently receiving long term disability benefits that I had through my previous employer.  I have been on disability since 5/16/2017.  I have a permanent disability that will not allow me to go back and perform the duties of my previous position.  There also haven’t been any other positions that have opened for me to do.  After 1 year on disability the company will be terminating my employment officially.  Since that is about a month from now I wanted to get  information about starting a company where I can day trade and invest in other businesses.

My retirement account is currently made up of part 401k, part Roth, and part pension from the company.  Not sure what all I will have access to.

 ANSWER:

While I certainly appreciate your inquiry, unfortunately you can’t set up and fund a business via our 401k Business Financing plan to day trade or invest in other businesses.  I wish you the best of luck.