Self-Directed 401K Options for Franchise Funding

 

So, what exactly is a Self-Directed 401K option and how does it lead to necessary capital for financing a franchise? We’re glad you asked!

 

First and foremost, the Self-Directed 401K is meant to take advantage of pre-tax investing—in this case, the investment for funding your potential franchise. Please note that “investing” in this case is much different than “withdrawing,” per the definitions. Simply put, when you “invest” your hard-earned retirement funds into the stock of your new company, you won’t incur penalties for the use of your money. They continue to stay deferred until you retire—as originally planned in most cases.

 

Also in this case, the “investing” you do on behalf of your business is different than a loan. There are no monthly payments or penalties and your taxes are deferred, leaving you to potentially begin your entrepreneurship debt-free. Avoidance of traditional taxation is another key benefit of the Self-Directed 401K plan. Because this is your business and you are the employer, you will receive the same retirement benefits afforded to a corporation. Matching funds programs ensure that you can equal your contributions paid to the company. These matching dollars are tax deferred up to the allowable limits, so make sure you do your research in this particular area.

 

The Self-Directed 401K option also includes a nifty perk if you ever intend to sell your business—and many potential franchisees get into the industry with this idea in place for their future. If you have funded your business with the Self-Directed 401K plan, your personal retirement plan owns the actual stock in your company. And thus, the proceeds from a sale can be returned to your retirement account—tax deferred again!

 

As with any financial plan outline, it is best to seek the advice of a qualified and licensed financial planner or a certified accountant. Laws on taxation may vary from state to state and you’ll want to make sure you are as informed as possible about the risks and rewards of a Self-Directed 401K option. There are both pros and cons to utilizing this financing method to power up your own new business and it may not be suitable for everyone. However, this option is gaining in popularity for those who fit the profile and have the means to take advantage of its benefits.

 

In summation, the Self-Directed 401K option may be a good fit to help you launch the business of your dreams—through its creation and on to its possible future sale. Franchise funding can sometimes be a complicated field to navigate; however, your qualified FranNet representative should be able to offer valuable insight on this and the many other financing options available to you. As always, we recommend you do your due diligence in discovering whether or not this particular funding exercise makes sense for you and the others set to benefit from your personal franchise ownership journey.