Using Retirement Funds to Purchase a Business

Retirement Asset Funding


What is Retirement Asset Funding?  The use of retirement assets [401K, SEP, IRA] for the cash to fund the purchase a business to operate and grow is known as Retirement Asset Funding.


With the employment uncertainty in today’s corporate environment, many people want to purchase a business to operate and grow – for their family’s financial security and eventual retirement.  However, the biggest challenge to acquiring a business is often the cash required for a down payment.  While SBA bank lending is often the best option for many acquisitions under $5 million, there is an alternative that is gaining rapid popularity – Retirement Asset Funding.


I’ve prepared the following list of some surprising facts and benefits about using retirement funds to purchase a business.  This information comes from Larry Carnell, one of the leading experts in the field of retirement asset funding – a rapidly growing trend in business acquisitions. The combination of these eight (8) benefits creates a very strong argument to consider this federally approved program.


Benefits of Retirement Asset Funding

  1. Higher Potential for Success: Companies that use their retirement funds vs. traditional finance options have greater profitability because, without debt service, those companies have more capital available to pursue activities resulting in the growth of sales and profits.
  2. Lower Insurance Costs: Using retirement funds is an investment – not a loan.  Therefore, it does not negatively impact credit scores.  Credit scores may impact insurance costs for car, homeowner and other insurance premiums. Insurance companies are finding that higher credit score clients have lower claims and therefore may charge them lower premiums.
  3. Lower Out-of-Pocket Healthcare Costs: The specific business structure that enables retirement asset funding, provides the ability to run health insurance deductibles through the company’s P&L, rather than being treated as an out-of-pocket personal expense. Deductibles are currently rising at an even higher pace than premiums. This practice can save a business owner thousands of dollars annually.
  4. Improved Wealth Protection: When you purchase a business with cash or a bank loan – the owner’s business interest can be subject to personal liability claims.  (NOTE: Healthcare costs are now the #1 personal liberty risk for people moving past their mid 40’s – due to changes in healthcare reimbursements, the Affordable Care Act, and other factors.)  However, when you purchase a business through your retirement plan – the business, assets and income are often better protected by federal bankruptcy law. And, in event of one spouse’s death, their wealth can often be better protected from potential creditors.
  5. Superior Exit Strategies: The appreciation of a business purchased through your retirement plan can also be protected from taxes when sold. Personal business asset appreciation can be subjected to immediate taxation consequences. However, this specific business structure, used when retirement funds are employed, can often save you hundreds of thousands of dollars in profits and immediate taxes. The appreciation realized at the time of sale can often be moved directly into your retirement plan and protected – often for the rest of your life (and your spouse’s life), OR be used PRETAX to buy a bigger/better business.
  6. Acceleration of Wealth: Unlike simple IRAs or 401(k)s, that often significantly limit your annual retirement plan contributions, custom designed plans for your company allow married couples the ability to accumulate and accelerate the growth of protected wealth by hundreds of thousands of dollars per year – better protecting your profits and reducing your taxes.
  7. Less Personal Risk: The use of retirement funds to finance a business acquisition compels the government to assume as much as 40% of your financial risk by using pretax vs. post-tax savings.  If the business fails, you lose 60%, but the government/IRS loses 40% … and you never have to pay that money back!  Loans can often require the use your home for collateral and require personal guarantees that can result in income garnishment in the event of default. This can result in losing even more than your original loan amount.
  8. Investment Leverage: Since retirement funds can also be used as an equity injection [i.e. down payment], those using retirement funds to finance a business acquisition can acquire a larger business – generating more cash to the business owner.

Email the Charlotte office or call 770.367.4356 if you’d like to learn more about Retirement Asset Funding.


The Summit Acquisitions Group — Business Brokers and M&A Advisors — specializes in the sale, appraisal, and financing of privately owned companies ranging in valuation from $750,000 to $25,000,000. Contact their offices in Atlanta, GA or Charlotte, NC for a free consultation.