Using your retirement to finance a franchise?

If you have always had the entrepreneurial spirit and you have a strong desire to start your own company, how will you acquire the funds you need to pay for it? To finance a franchise, you are going to need to make a significant investment with your own money. Since lenders are not offering money to new businesses right now, you may have another option to finance a franchise, your retirement.

A number of entrepreneurs have been using their retirement to finance their companies for many years as it is essentially an investment for your future, like your retirement. The downside is if your small business fails, not only will you lose your investment; you will lose all that money that you pulled out of your retirement as well.

Pulling money out of your retirement is a gamble. For starters, you are going to face a penalty for doing so, but you will be allowed to pull it out. The early withdrawal penalties are pretty severe as the government and the IRS really want people to avoid doing so in order to save for their retirement.

Another option that is available is doing a rollover with your retirement account into your new business. By doing this, you won't pay any early withdrawal fees and it's easier than trying to acquire the funds from your 401(k) on your own. Here's the cold hard fact about rollovers, 60% of new small businesses are started with them. This rollover money and trend is starting to catch on and the good news is that it is generating about 60,000 new jobs each year. The IRS actually is encouraging this rollover method as it is helping to stimulate the economy again.

Using your retirement can give you a little bit of freedom. You don't have the same payment plans as you do with a loan or line of credit and it's not like you need to mortgage your home again to start the business. You are using the money you have already set aside and it is working wonderfully for a lot of entrepreneurs. You need to be sure you have a good business idea before you think about dipping into your future finances to pay for a business right now.

Retirement rollovers are great but you do need to be aware that they may not be quite as simple as most people will have you believe. Get yourself a good financial advisor that will be able to help you take a look at how many working years you have left and if you can rebuild the funds that you have taken out of your retirement. You don't want to put yourself in jeopardy in your 70's and 80's so you need to be smart with this money in your 30's. When you agree to a rollover, you will need to pay an annual fee to the provider.

Maintaining the plan is expensive, hence why you need to pay an annual fee on the amount that you borrow. A rollover is now considered a profit-sharing plan for your business, which the IRS will watch closely. This means your risk of being audited will almost double so you want to be very particular with your books and financial documents in order to avoid any type of mistake that can trigger an audit and a large penalty.

A good CPA will be able to help you with all of the compliance standards in order to help you avoid audits and other issues with the IRS. Pulling form your retirement is definitely a big risk but if you feel that the investment you will make in a new company is worth it, take a gamble and finance a franchise.