The idea of using retirement funds to help finance a business purchase isn't new; it's been legal since Congress passed the ERISA legislation in 1974. But traditionally, this has been a strategy used by the wealthiest Americans with the help of highly-paid advisors. More recently however, the concept of converting the cash in IRA and 401(k) plans for use as a down payment on a franchise or independent business is being more widely adopted by business buyers.
The danger of incurring taxes and penalties for withdrawing money from retirement accounts can be avoided if convertible retirement fund financing of a business purchase is done correctly. That's the case even if the investor is not old enough to begin taking standard distribution without penalty. And it's no longer necessary to engage the services of a tax attorney specialist, at roughly $600 an hour, to plan and execute an IRS-approved reallocation of retirement funds. BizBuyFinancing clients who have sought our guidance to take advantage of this opportunity have been connected to services that provide secure and affordable ways to unlock funds from retirement accounts so the money can be used to purchase small and mid-sized businesses.
There are several good reasons to direct retirement funds into a business purchase.
Benefit of self directed investments: Many Americans who've watched their holdings in the stock market lose value as stock prices decline in response to the world's economic woes want more control over how their money is invested. A self- directed retirement fund means no more gambling with publicly traded equities and no more fees to have those gambles managed. Instead, the investor who uses retirement fund financing to purchase a business has complete control over the use of his money. If you decide on this strategy, the value of your investments will depend on your ideas and diligent work. That's probably a better bet than having it managed by others.
Security of business ownership: Among the changes impacting our economy is that what used to be a "sure thing"-- the income and benefits collected by working for a good company -- is no longer a reliable career choice. And what was seen as a risky proposition--buying someone else's business, now is considered a solid strategy to secure your future earning power. With the challenges now presented by the job market, and the fact that the economic recovery is not spurring growth in employment, many Americans are concluding that owning their own businesses is the best way to insure financial security.
Leverage power of cash used to buy a business: The amount of money to work with as a down payment determines the size of the gas station, professional practice (for a dentist or medical doctor, for example), retail store or other business opportunity an entrepreneur seeks to acquire. Putting more money into a deal usually translates to a more profitable business. A down payment of 25% of the price, for example, tells the seller and any lenders that you are committed to the business and determined to succeed. That's the message to send when you want a transaction that involves seller financing and an SBA-backed or commercial loan to complete the business purchase.
Advantage of using pre-tax dollars to invest in a business. This benefit, of course, is only achieved if conversion from passive investment accounts to your own business is done according to tax authority regulations. Check with Peter Siegel at BizBuyFinancing 800-540-1811 to learn more about how this is accomplished.
Steps involved in converting retirement funds for business purchase financing can be planned and carried out by specialists for a fraction of what this process used to cost. A small industry devoted to this specialty is developing in most parts of the country. Many of the providers in this field are extremely competent and do their work at competitive rates. Selecting a qualified professional to provide this service is critical, of course. And the professional should be experienced in this field, not an individual or company just beginning to offer the help and asking cut-rate prices. The first step in making this happen is to call on BizBuyFinancing for advice and for guidance to the right specialist in this arena. The following steps, taken with your tax specialist's assistance, include:
Formation of a Limited Liability Company legally constituted to accept retirement fund money without creating a taxable event for the investor.
The LLC invests in the business to be purchased, using the funds transferred from the retirement account.
Record keeping and administrative practices are conducted before, during and after the business purchase, in keeping with the rules established by the IRS, and throughout the existence of the LLC.
Eventual resale of the business involves a deal structure that preserves the tax protections available, and avoids incurring penalties.
The current business opportunities market is considered a favorable environment for someone wanting to purchase a business. There are a number of companies for sale that have been consistently profitable over the years and can generate a good return to the owner. A company recovering from the business slowdown might be the ideal acquisition target if it can be acquired while in a growth cycle.
And for the entrepreneur determining how to finance the purchase of a good business, the rollover of retirement funds into a form that can be used to help make the purchase is often the best strategy. Your retirement accounts are there to help secure your financial future. With the assistance of BizBuyFinancing, that money can be used precisely to achieve that objective.