Should you use your retirement funds to purchase a business? Historically, most financial advisors believed retirement funds should not be withdrawn before retirement unless it was an absolute emergency. Retirement funds are designed to cover your expenses after you discontinue working. However, purchasing a business using retirement funds is a good investment if you play your cards right. Buy a business, build up its value greater than what you initially paid for it, and sell it for a profit to fund your retirement. I strongly recommend consulting a professional in regards to taxes when deciding to go this route. Let’s further examine this topic.
Welcome to the New Economy
Getting money from lenders to fund a business purchase is getting increasingly more difficult these days. The days of easy money are over. Lender profiles change all the time and business loans that may have been approved in the past, now end up in the decline pile. With this, buyers are faced with the task of securing alternative funding in order to complete business transactions. Using retirement funds can be a source of funding.
Many people have invested their retirement in the stock market. The stock market is volatile. Great gains can be had and great losses can be suffered. Currently stock market values are growing. However, there is any number of events that could occur to reverse that trend and send it in other direction. Money could potentially be lost when it could have been used on an investment like purchasing a business.
Purchasing a business with retirement funds should be thought of as an alternative investment option. If you can successfully sell the business down the line at a profit then you have funds available to fund your retirement.
Taking the Risk Out
Of course there is risk involved in this strategy. If your business fails than you stand to lose your retirement funds. However, as the owner of the business you have some control over the outcome of your endeavor so essentially you are taking a risk on yourself. If you are willing to assume the risk the next step is to consult a professional to execute a funding strategy to minimize tax implications.
Working with a professional is essential in making a transaction like this successful. You want to find a niche financial advisor or specialty loan Broker to help you navigate the process. There are some tax specialists that can also help. I have personally helped many of my clients unlock retirement funds without tax consequences to take control of their future.
Many people don’t realize that the Federal tax code allows an investor to make tax and penalty free withdrawals from a fund set up under its tax deferment provisions if the money is used for another approved investment. However, this process involves several specific steps and it is not recommended as a Do-It-Yourself project, so again, working with a professional is paramount.
When an entrepreneur finds a good business to buy and decides that it is the future for which he or she has been saving, using retirement funds to finance the purchase of this business can be a worthwhile strategy. Just take my advice and consult with a professional. Don’t waste your hard earned money on taxes, let a professional help you use the money you set aside for tomorrow and put it to work today!