With the current drop in our financial markets, I’ve been considering taking some money out of my IRA to invest in my business. Who am I kidding? I first asked my financial advisor about this about two years ago. She had indicated there was a significant tax hit, around 30%-40%, and I just really didn’t want to pay that.

I just read an article at the New York Times called “Betting Your Retirement on Your Start-Up.” In this article, a man has about 160,000 in his 401k, and wants to buy into a franchise with $30,000 franchise fee. He also needs start-up capital. He didn’t have any other acceptable sources for financing.

To sum up the article, here is what he did:

• He got advice from BeneTrends, Inc., a company that specializes in helping people with these types of transactions. Total cost about $5,000.
• He set up his business as a C Coprporation, a designation that allows a company to issue private shares of stock.
• He created a profit-sharing retirement plan within his corporation. This made it eligible to accept pretax retirement contributions.
• He rolled over about half of his retirement savings, roughly $80,000, from his 401(k) into the profit-sharing plan. The profit-sharing plan bought the franchise rights and also provided working capital for his business.

If you want to find out more, read the New York Times article. I’m posting this here just so I don’t lose this idea. I also thought some of my readers might be interested as well.