While many entrepreneurs are flocking to alternative lenders, such as LendingClub and OnDeck, to fund their business, others are using their 401(k) or IRA – without paying taxes or penalties. There are a number of advantages to using retirement money over taking out a loan, including:
- No debt, no interest, your business is an equity investment
- Faster access, get funding in about 10-15 days
- Independence from investors, retain 100% ownership
The IRS refers to this financing strategy as “Rollovers as Business Start-Ups” ROBS.
“A growing number of entrepreneurs are using money from their 401(k), IRA or other retirement savings accounts to finance a new or existing business without paying taxes or penalties. The strategy has several key advantages.”