Need Money to Start A Side Gig?

VastSolutionsGroup.com
3 min readJan 22, 2024

Your 401(k) can come to the rescue!

Yep, why not?

In today’s world it is tougher and tougher to find money to start businesses. One way you could do so in 2024 is to use your retirement assets. Yes, you can fund a business with your IRA dough.

While most people are aware of the option of using their 401(k) to purchase a home, most are not aware that the option exists to use their 401(k) to fund a business. Let’s look at how you can do that.

Here is the process to set it up:

  1. Set-up a C Corporation. You can do this yourself or hire an attorney. There is no shortage of information available online to guide you. Your C Corporation will need to create — but not issue — stock.
  2. Have the corporation adopt a 401(k) retirement plan. This retirement plan should be a profit-sharing plan that permits all of the plan assets to be invested in company stock.
  3. Rollover your 401(k) or IRA to the new 401(k) in your C Corporation. Keep in mind that you can have multiple sources and even multiple people involved. That includes your spouse or anyone else that’s interested.
  4. Issue stock and transfer it to the profit sharing plan. This is in exchange for the cash that was in the plan.

You can then use this cash to go out and invest the money in your business. The process is simpler than it appears. You can do it with a little help. Some companies will set everything up for you for about $5,000. They will also administer the retirement plan for ~$800 / year.

If you’re not already familiar with this process, it’s important to get professional help; the government dishes out penalties when errors are made with regards to retirement plans. So contact a professional that knows the details.

What are the Potential Pitfalls?

  1. Lack of diversification. If you’re putting all of your retirement funds into one investment, you only need one investment to fail to potentially lose all of it. Ensure you know what you’re doing before you dedicate all of your funds to your business. It might be prudent to have other investments as well.
  2. Tax issues. The IRS expects you to operate the business on a daily basis. Absentee owners aren’t looked upon favorably from a tax standpoint. There are exemptions for investing in an operating company. It cannot be a hobby…

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