FAQ – 401K Plan Financing

What is 401K Financing?

The US law allows a penalty-free way to roll your 401K savings into funding for a business you want to own. This is done through an arrangement called “Rollovers For Business,” and it gives you the option to invest in your own business without tax penalties or loans involved.

What kind of business opportunities are eligible for 401K Financing?

If you want to buy an existing business, such as a franchise, that opportunity is eligible. You also can use this method for starting your own company from scratch or expanding your current business.

Is this tax loophole?

No, it’s not. It’s actually part of the ERISA Act of 1979. This act put most of the burden of retirement from the employer’s hands to the hands of the employee.

Is this new?

Not really. Since 1979, this method has been used by company owners to make their dreams come true.

Can I pay myself a salary using 401K Financing?

Absolutely. Actually, paying yourself a salary is part of the requirements involved in getting 401K Financing. However, the way it usually works is that your salary is paid from the profits that your company makes after it opens up. So, you will need to get your salary from your company’s operations rather than the funding itself.

What kind of businesses can I invest in?

Almost any kind of business is eligible for 401K Financing. There is one exception, though: you can’t use this form of funding for a business that is solely devoted to investing capital.

Do I need a specific company structure for this to work?

Yes. 401K Financing is only available to C-Corporation structures. LLCs and S-Corporations can’t apply.

Will I have to offer a 401K plan to all of my employees?

Yes. It’s the law, and it would make your employees really happy. By offering a good retirement benefit like a 401K plan, you’re likelier to attract and retain your top employees.

Can employees invest in company stock?


Can I combine my retirement fund with other retirement funds to invest?


Can I really use my retirement funds without tax penalties?

Yes, as long as you’re funding a business. As long as you’re investing in a company that sells stock, or a company that is being bought at fair market value, you can do it.

What kind of retirement plans qualify?

The most common qualifying retirement plan is the 401k’ plan.  Other qualifying plan’s include the 403b, 457, annuities, profit sharing, IRA’s, SEP’s, Simple Plans, Defined Benefit Plans, Employee Benefit Plans, Cash Balance Plans, and Money Purchase plans. However, you cannot use Roth IRA’s, Roth 401k’s, or IRA’s that were inherited.

How much does this cost?

To make it all happen, we charge a fee of $5,500, along with an $800 annual fee. This goes to the work and fees associated with filing Form 5500 for your taxes.

Do I need an attorney’s assistance?

It’s never harmful to speak with an attorney regarding personal and business matters, and often times, it may be the best thing you can do if you think that an attorney’s advice can help you. Although we aren’t a law firm and we cannot provide anyone with any legal advice, you are more than welcome to speak with an attorney that we use for our company. We truly want to get familiar with our clients, and help them in any way we can. Simply send an email to info@creditworthybiz.net and we’ll be sure to forward it.

Still need help?  If you have a question that isn’t answered here, or if you feel like you could use advice when it comes to the best route of financing for your business, we are here to help you make the best choice for your company!  You may call us at (561) 320-1779 or email: info@creditworthybiz.net.  You’re also more than welcome to visit our office.  Evening and weekend appointments are available.