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Finding a way to finance franchise purchases is generally one of the biggest obstacles that most people have to overcome when looking to buy a franchise. One option that many people use is to access their retirement funds for the purchase of the franchise. There are a few different possibilities that you could look at in order to get access to your retirement funds for this purpose. Here are a few things to consider about using your retirement money for a franchise.
Borrowing from 401k
If you have a 401k plan through your employer, you could potentially borrow against it to gain access to the money that you need. Most 401k plans have a provision that allows you to borrow against the money in your account. You get access to the money and you do not have to pay taxes on it or an early distribution penalty. You will then have to repay the money over a certain amount of time with interest. It is simple to get a 401k loan because you do not have to have your credit check or make a certain amount of money. You can fill out a form and you will have the check within a short period of time. With this type of loan, you need to be very careful because if you do not pay it back, it will count as an early distribution. In this case, you will have to pay a 10 percent early distribution penalty and pay taxes on the money that you took out.
ROBS Plan
Another option that you might pursue is a ROBS plan. ROBS is an acronym for Roll Over for Business Startup. This method is a little bit more complicated, but it will give you access to the money that you need. You will not have to worry about paying back the money like you do with a 401k loan.
With this arrangement, you will set up a new business and start a 401k plan for the employees. You will roll the money from your existing 401k into this new 401k. You will then use the cash in the new 401k to buy stock in your new company. This will provide you with the cash that you need to run your business, and it will provide your 401k with stock.
This process is completely legal and it will allow you to get around the rules concerning early distribution. You just need to be careful that you do the process correctly or you might have to pay penalties. Consult a professional for this process so that you can avoid mistakes.
Do Your Homework
Before you get involved with borrowing money from your retirement to purchase a franchise, you need to be sure about the opportunity that you are pursuing. There are thousands of franchises out there and you need to be entirely sure that you are purchasing the right one. Otherwise, you will use up your retirement funds on an unsuccessful business venture.
