3 Ways to Fund your Business with Retirement Savings
Entrepreneurs who are looking to start, acquire, or grow a business often consider using retirement funds. For many people, their 401(k) or IRA may represent their largest amount of savings.
There are three ways you can access retirement funds to invest in yourself and your own business.
1 – Take a Distribution
It is possible to take a distribution from a 401(k) or IRA retirement plan.
This is not normally best way to fund your own business because it creates a taxable event.
If you have a tax-deferred plan, the amount withdrawn will be taxed as regular income at the federal level as well as in your state of residence if it has an income tax. If you are under normal retirement age of 59 ½, there will also be a 10% penalty for early distribution.
You could be left with as little as 50% – 60% of the distributed amount after taxes. Ouch!
In a Roth plan, the distribution may be tax-free, but you can still be subject to a 10% penalty for early distribution of investment earnings if you are under age 59 1/2.
About the only time it makes sense to take an early distribution from a retirement plan is if you only need a very small amount and do not have easy access to other forms of credit.
2 – Solo 401(k) Loan
As a 401(k)-style retirement plan, the Solo 401(k) offers a participant loan.
If your business operates in an owner-only fashion and does not have any non-owner employees, you are eligible to establish a Solo 401(k) and rollover an old IRA or 401(k) into that new plan.
For limited capital needs, this can be a great way to access some cash for your business.
Following are the details of how the Solo 401(k) loan works:
- You may borrow the lesser of 50% of your participant account value or $50,000.
- The loan is for a 5-year maximum term.
- The interest rate is set at prime +1%
- Payments must be made on an amortized basis, at least quarterly.
- You may take up to 3 loans at any time, up to the borrowing limit.
- There is no penalty for pre-payment of a loan.
- Loans are participant specific. If both you and your spouse have savings within your Solo 401(k), each of you can borrow up to your respective limit.
- If you fail to repay the loan, it is considered a distribution and taxed accordingly, including early distribution penalties if applicable based on your age.
Because the Solo 401(k) loan is limited to a maximum of $50,000 and a 5-year term, it may not be sufficient for larger ventures.
If you have a business with moderate capital needs and just want to have a bit of buffer to get it up and running or get through a growth phase, the Solo 401(k) loan may be just the tool for the job.
3 – Rollover as Business Startup
Your retirement savings can directly invest in your own business with a Business Funding IRA. There is no limit on the amount and no taxes or penalties.
For larger ventures, this is the program of choice.
This program is often referred to as a Rollover as Business Startup or ROBS plan but is not just for startups. The strategy can be applied to both new and existing business projects.
The ROBS structure works as follows:
- The operating business must be a sub-chapter C corporation.
- The business establishes a 401(k)-style retirement plan.
- As an employee/owner of the business, you can rollover funds from a prior employer tax-deferred IRA, 401(k), or retirement similar plan.
- The 401(k) plan then uses an employee stock option purchase (ESOP) to acquire shares of the parent corporation.
- The plan is now a shareholder of the business, and the plan capital is available to the business for startup, expansion, or other legitimate business capital needs. You can even pay yourself a salary.
There are no taxes associated with this strategy.
There is no limit on the amount of funds you can rollover.
Because of the administrative infrastructure required for this plan, we do not recommend this solution for rollover amounts of less than $100,000.
Invest in Yourself Wisely
Being able to use retirement savings as a means to provide startup or growth capital for your business can be a game changer. Sometimes it can be the difference making capital that allow you to invest in yourself and your dreams.
You should always proceed with caution when thinking about tapping your retirement savings for any purpose, however. Make sure your IRA or 401(k) is the best available source of funds. Sometimes a SBA loan or taking on an investor or partner can be the better play.
And be sure you have a good vision and a good plan to protect and grow your savings. Having a professional like a CPA review your business plan before moving ahead is wise.
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Quick answers to common questions
We’ll take you through a simple, step by step process designed to put your investment future into your own hands…immediately. Everything is handled on a turn-key basis. You take 100% control of your Retirement funds legally and without a taxable distribution.
YES! In 1974, Congress passed the Employee Retirement Income Security Act (ERISA) making IRA, 401(k) and other retirement plans possible. Only two types of investments are excluded under ERISA and IRS Codes: Life Insurance Contracts and Collectibles (art, jewelry, etc.). Everything else is fair game. IRS CodeSec. 401 IRC 408(a) (3)
It’s actually pretty simple. Early on, regulators let the securities industry take the lead in educating the public about retirement accounts. Naturally, brokers and banks promoted stocks, bonds, and mutual funds—giving the impression that those were the only allowed investments. That was never true... and still isn’t. You can probably guess why they kept the rest under wraps.
It is possible to use funds from most types of retirement accounts:
- Traditional IRA
- Roth IRA
- SEP IRA
- SIMPLE IRA
- Keogh
- 401(k)
- 403(b)
- Profit Sharing Plans
- Qualified Annuities
- Money Purchase Plans
- and many more.
It must be noted that most employer sponsored plans such as a 401(k) will not allow you to roll youraccount into a new Self-Directed IRA plan while you are still employed. However, some employers will allow you to roll a portion of your funds. The only way to be completely sure whether your funds are eligible for a rollover is by contacting your current 401(k) provider.
A Solo 401(k) requires a sponsoring employer in the format of an owner-only business. If you have a for-profit business activity – whether as your main income or as a side venture – and have no full-time employees other than potentially your spouse, your business may qualify. The business may be a sole-proprietorship, LLC, corporation or other entity type.
A self-directed retirement plan is a type of IRA or 401(k) that gives you greater control over how your retirement funds are invested. Unlike traditional accounts held at banks or brokerage firms that limit you to stocks, bonds, and mutual funds, self-directed plans allow you to invest in a wide range of alternative assets including real estate, private businesses, precious metals, cryptocurrency, and more.
These plans still follow the same IRS rules and maintain the same tax-deferred or tax-free benefits as conventional retirement accounts. The difference is simply in how and where you choose to invest.
No. Moving to a self-directed IRA or Solo 401(k) does not trigger any taxes, as long as your funds are eligible for rollover.
Self-directed retirement plans maintain the same tax-advantaged status as traditional plans offered by banks or brokerage firms. The key difference is flexibility—our plans are designed to give you greater control and allow for a wider range of alternative investments beyond stocks, bonds, and mutual funds.
A prohibited transaction is any action between your retirement plan and a disqualified person that violates IRS rules and can lead to serious tax consequences. Under IRS Code 4975(c)(1), prohibited transactions include:
- Selling or leasing property between your plan and a disqualified person Example: Your IRA cannot purchase a property you already own.
- Lending money or extending credit between the plan and a disqualified person Example: You cannot personally guarantee a loan your IRA uses to buy real estate.
- Providing goods or services between your plan and a disqualified person Example: You can’t use your personal furniture to furnish a rental property owned by your IRA.
- Using plan income or assets for the benefit of a disqualified person Example: Your IRA cannot buy a vacation home that you or your family use.
- Self-dealing by a fiduciary (using plan assets for their own benefit) Example: Your CPA shouldn't loan your IRA money if they’re advising the plan.
- Receiving personal benefit from a deal involving your IRA's assets Example: You can’t pay yourself from profits your IRA earns on a rental.
If a transaction doesn’t clearly fall within the allowed guidelines, the IRS or Department of Labor may review the situation to determine if it qualifies as a prohibited transaction.
Disqualified persons are individuals or entities that are prohibited from engaging in certain transactions with your IRA or 401(k). Doing so could trigger a prohibited transaction, which may result in taxes and penalties.
Here’s who is considered a disqualified person:
- You (the account holder)
- Your spouse
- Your parents, grandparents, and other ancestors
- Your children, grandchildren, and their spouses
- Any advisor or fiduciary to the plan
- Any business or entity owned 50% or more by you or another disqualified person, or where you have decision-making authority
These rules exist to prevent self-dealing and ensure your retirement plan remains in compliance with IRS regulations.
(Reference: IRC 4975)
Understanding and following these rules can be tricky, but it’s very doable. The best way to stay compliant is to work with professionals who specialize in self-directed retirement plans. They can help you navigate IRS guidelines and avoid prohibited transactions.
If an IRA holder is found to have engaged in a prohibited transaction with IRA funds, it will result in a distribution of the IRA. The taxes and penalties are severe and are applicable to all of the IRA’s assets on the first day of the year in which the prohibited transaction occurred.
Yes. While self-directed retirement plans allow for a wide range of investments, there are a few important restrictions.
You cannot invest in collectibles or life insurance contracts, and you must avoid prohibited transactions—activities that benefit you personally rather than the retirement plan. These include things like buying or selling property to yourself or family members, using plan assets for personal gain, or self-dealing in any way.
Violating these rules could cause your entire IRA to lose its tax-advantaged status. To protect your account, it’s essential to work with professionals who understand IRS regulations and can help you stay compliant.
This is a common misconception. In many cases, professionals may simply be unfamiliar with self-directed retirement plans, as they fall outside their usual scope of work. CPAs and tax preparers are trained to file taxes, not necessarily to advise on alternative retirement strategies. Financial advisors and brokers often work for firms that focus on traditional investments like stocks and mutual funds—and may not benefit from or support alternative options like real estate or private lending.
Self-directed retirement investing is legal under IRS rules—but like any specialized area, it requires working with professionals who understand how it works.
The IRS has rules in place to make sure your IRA is used only for the exclusive benefit of the retirement account—not for personal gain or to help family members. These rules can get complicated because there are many ways a conflict of interest can occur, even unintentionally.
For example, if your IRA buys a house and rents it to your mother, you might be reluctant to evict her if she stops paying rent. That emotional connection creates a conflict between what’s best for your IRA and your personal relationships, something the IRS aims to prevent.
These rules help ensure your retirement account stays compliant and protected. (See IRC 408)
Yes. Most tax-deferred retirement accounts—such as Traditional IRAs, old 401(k)s, 403(b)s, and TSPs—can be rolled over into a self-directed IRA or Solo 401(k), depending on your eligibility. Roth IRAs cannot be rolled into these accounts.
You can contribute directly from earned income, subject to annual IRS contribution limits. The method and amount depend on the type of plan you have (e.g., Solo 401(k) vs. IRA).
To take a distribution, you'll request funds through your custodian or plan administrator. Distributions may be taxable depending on your account type and age. Early withdrawals may be subject to penalties.
For 2025, the Solo 401(k) max contribution limit is $81,250 if age 60-63, $77,500 if age 50-59 or 69+, and $70,000 if under 50. Traditional and Roth IRAs have a limit of $7,000 ($8,000 if age 50+). Limits are subject to IRS adjustments.
Yes. IRA contributions are typically due by your personal tax filing deadline (e.g., April 15). Solo 401(k) contributions follow your business tax filing deadline, including extensions.
IRS reporting requirements vary depending on the type of self-directed retirement plan you have. Here’s a quick breakdown of what you need to know
Please note: Our team can help you understand what’s required for your specific account, but we don’t provide tax or legal advice. We always recommend working with a qualified tax professional to ensure full IRS compliance.
Self-Directed IRA (Traditional or Roth)
- Form 5498 – Filed by your custodian each year to report contributions, rollovers, and the fair market value (FMV) of your account.
- Form 1099-R – Issued if you take a distribution or move funds out of your IRA.
- Annual Valuation – You'll need to provide updated FMV for any alternative assets held in the account, such as real estate or private placements.
Solo 401(k)
- Form 5500-EZ – Required if your plan assets exceed $250,000 as of year-end. Must be filed annually by the plan participant.
- Form 1099-R – Required if you take a distribution or roll funds out of the plan.
- Contribution Tracking – Keep records of employee and employer contributions. These are not filed with the IRS but may be needed for tax reporting or audits.
SEP IRA
- Form 5498 – Filed by your custodian to report contributions and FMV.
- Form 1099-R – Filed by your custodian. Issued for any distributions.
- Employer Contributions – Must be reported on your business tax return (and on employee W-2s, if applicable).
Health Savings Account (HSA)
- Form 5498-SA – Filed by your HSA custodian to report contributions.
- Form 1099-SA – Filed by your HAS custodian. Issued for any distributions.
- Form 8889 – Must be included with your personal tax return to report contributions, distributions, and how funds were used.
