Can You Use Your IRA to Start a Business?

If you’ve seriously thought about opening your own business, you know that the capital requirements can be huge. In fact, this is probably the biggest deterrent for hopeful entrepreneurs. This especially true if you’re looking into franchise opportunities. Often franchises will require $75,000 to $1,000,000 in liquid assets. That’s quite a chunk of change.

If, after seeing these figures, you’re still determined to buy into a franchise, you might start looking into financing options, which could lead you to an Internet search, which might bring up articles that suggest you tap your retirement funds to start your new business. And where will all this Give a Mouse a Cookie thinking take you? Well, it’s not a simple answer and if you get it wrong you might end up paying big taxes and hefty penalties.

So, yes, it is possible to tap your IRA and/or 401(k) to start a business, but you can’t simply make a withdraw. It’s also not an easy DIY transaction. In other words, it’s complicated. It involves rolling money over to a corporate retirement account that permits you to invest in a business. To make this happen you really need the assistance of a financial planner or third-party retirement-plan administrator. Essentially, you are setting up to invest in the new business.

Making this work with IRS is tricky business. While there are no clear rules against or for the practice of tapping funds to start a business, it sort of goes against the purpose of retirement accounts.

This brings us back to what it was the mouse wanted in the first place. The majority of new businesses don’t make it. Are you willing to risk your retirement investments?

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