Yes! Using a 401 (k) to start a business is completely legal—when done correctly. Thanks to a law passed in 1974, it is absolutely legal to rollover your 401 (k) for start-up capital to buy a franchise.
Financing your franchise
One of the ways to improve the return on an investment is to leverage – use other people’s money to profit. You may have considered borrowing to invest in a franchise. Many franchise buyers and small business owners do.
What is a Rollover for Business Startups plan?
A Rollover for Business Startups (or ROBS) allows you to use your retirement funds to pay for the costs of starting a new business.
The advantages of using a ROBS
I’ll be looking in more detail at the advantages and disadvantages of using ROBS to buy a franchise in a future article. For now, here’s a summary of the benefits of ROBS schemes:
How do ROBS plans work?
The attraction of a ROBS is easy to understand. No loan repayments, control over your money, a faster route to profitability, and you keep more of the profits to do with as you wish.
Should you use a ROBS to finance your franchise?
Using a ROBS to finance your franchise purchase is an attractive proposition. Your business has important startup financing, pays no interest on it, and should reach profitability sooner. There are tax advantages not available otherwise, and you won’t need to put collateral at risk.
