If we count the perks of being self employed or owning a small business, we could spend the better half of a day on penning them down. However, with these perks comes greater challenges and every entrepreneur has a bag full of similar experiences.
If you are a small business owner looking for your next financial leap, owning a franchise is an excellent idea. There is no doubt that creating your own brand gives you a distinction in any given industry but the process itself is quite grueling. On the contrary, owning a franchise is equally rewarding in terms of profits and you will benefit from the marketing campaigns of the brand itself. The only major investment is the setup cost and initial franchise fee of the brand. Once the store is open for business, you will enjoy a continuous flow of income.
Solo 401k is a retirement plan that can help you in receiving the necessary funding for the franchise. You can access your retirement savings for capital needs. Solo 401k plan allows investments in non-traditional assets. You can even borrow up to 50% of the fund amount (maximum limit of $50,000) for your financial requirements. The best part is that you are using it for investment purpose so there will not be any withdrawal penalties.
Solo 401k for Small Business Owners: How to fund a new business or franchise with Solo 401k?
- Open a Solo 401k retirement account and rollover your existing IRA funds into it. Opening solo 401k is a simple process and requires minimal paperwork, provided that you meet the eligibility requirements. While opening the account, make sure that your provider offers your preferred investment options and ask about the maintenance fees upfront. If you are planning to invest in a wide range of industries or asset classes, make sure to opt for checkbook control.
- You can choose among Solo 401k or Roth Solo 401k retirement plans. Roth solo 401k plan offers tax-free growth and distributions whereas Solo 401k plan offers tax-free growth with taxes applied upon distribution.
- After opening the account, you can fund the franchise by categorizing it as an investment under the name of your Solo 401k account. With this option, you as a disqualified person cannot personally benefit from the franchise. The earnings must be paid back to the Solo 401k.
- Another option is to apply for participant loan and use the loan for funding. If the funds come from the loan option, the franchise will be under your personal name instead. You can keep the earnings. However, you are responsible to pay back the Solo 401k loan on time.
You can use your Solo 401k account to fund a franchise owned by a qualified person. In a similar manner, you can receive funding for your business or franchise from Solo 401k account holders.