Guidant Financial Group Blog

Inc.com recently published an article on how to finance a business with your 401(k), as part of a series on starting a business in a down economy.

With input from Guidant Financial Cofounder David Nilssen and a Senior Tax Analyst at Thomson Reuters, Inc.com writer Matt Quinn delved into topics such as the process of setting up a 401(k) account as part of the 401(k) small business financing strategy, the risks associated with using retirement funds to start a business, and who the IRA/401(k) funding option best works for.

Quoting Thomson Reuters Tax Analyst Dick O’Donnell, from the article, about the 401(k) structure, "Because it's retirement plan money that's being used for this, you have ERISA and Internal Revenue Code penalties that apply unless all the ‘Is’ are dotted and the ‘Ts’ are crossed.”

This quote is in reference to using a qualified CPA, Attorney or IRA Facilitator, such as Guidant Financial Group, who can help guide you through the process of using retirement funds to fund a business. Guidant is in strong agreement here, and we encourage prospective clients to include their professionals on their consultations with us. We take compliance very seriously and agree that the carrying out a thorough due-diligence process is best when considering a non-traditional financing option. We feel so strongly about this that each client who engages in Guidant’s services is provided with their own, independent legal representation. Guidant pays for every client to have two separate consultations with an outside attorney who understands this investment strategy.

Another notable issue is that the article does well to touch on is that of paying one’s salary out of retirement funds. As the article explains, “To mitigate [the risk of people setting their own salary and consequently bleeding the retirement plan], Guidant advises that people don’t take a salary out of the proceeds of the retirement fund's investment. Rather, the salary should come out of future operating revenues. Additionally, Guidant recommends that would-be business owners get a third party, such as an accountant, to tell them what someone in their line of work, in their area of the country, pays themselves.”