Financing a Franchise with an IRA or 401(k)

Consumers can use their retirement funds to purchase a franchise in one of three ways: by investing their retirement funds into a franchise, borrowing from a 401(k), or taking a distribution from their IRA or 401(k). The distribution option has taxes and penalties associated with it, but does not require a specialized retirement account. Consumers who choose to invest in a franchise or borrow from their retirement funds will require specialized retirement accounts.

There are few restrictions regarding what kind of retirement account can be used for any of these three options. Distributions can be made from most retirement accounts, but often require some type of hardship statement. Loans from a 401(k) only happen inside of a 401(k). This is easy to accomplish by sponsoring a new 401(k) with the business entity from which the franchisee will run the new franchise. As a retirement investment, consumers can use any retirement funds that are rollover eligible.