How to Finance a New Business by Rolling Over Your Retirement Funds

In times of tight credit, you can finance a new business or franchise by rolling your retirement funds into your new company. You pay no income taxes or early withdrawal penalties, avoid debt and have money available immediately to rent a space, hire employees, buy equipment and pay yourself a salary. And this is all sound, the firms that arrange these rollovers say, because they’re “based on long-standing provisions of the Internal Revenue Code.”

For thousands of startups, these rollovers are working. Every year, thousands of businesses are launched with retirement rollover money. These new entrepreneurs create more than 60,000 new jobs and adding $8.3 billion to the nation’s economy.

Indeed, one of the early adopters, Gary Cote, used $60,000 from his 401(k) back in 2005 to start Sunray Technology Ventures, a California provider of high-speed internet access services for hotels (sadly, Mr. Cote passed away in 2012). “I didn’t want to borrow money or mortgage our home to the hilt,” Cote once said. “Using my retirement money gave me independence. We’ve been profitable since 2007. I can’t say enough about the scenario that allowed us to provide for all these people.”

Although the mechanism for rolling retirement funds into business startups has been available for decades, the practice began in earnest in 2000, when industry founders and former business associates Leonard Fischer, founder and chairman of the board of Benetrends Financial of North Wales, Penn., and Steven Cooper, president of SDCooper of Huntington Beach, Calif., introduced the concept at the annual convention of the International Franchise Association. “We were the hit of the show,” Cooper says. Rollovers gained momentum during the early 2000s but fell out of favor during the boom years before the Great Recession, when credit was easily available.

 

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Credits: Entrepreneur
Source: https://www.entrepreneur.com

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