Financing a C-corporation with a 401(k)

Entrepreneurs who are interested in using their 401(k) to finance their startup must file a C-corporation in order to leverage their retirement funds.

Business owners must start a corporation in order to set up a retirement plan, notes Matt Quinn of Inc. magazine.

“The first action is to establish a C-corporation that has created but not issued stock. The corporation then adopts a retirement plan. Specifically, what you want is a profit-sharing plan that allows 100 percent of the plan assets attributable to rollovers to be invested in employer stock,” writes Quinn.

The entrepreneur’s next step will be to rollover his or her retirement funds from a former employer of IRA into the new 401(k) plan. Multiple sources and people can contribute to the fund. After making these changes, the corporation can now receive cash in the profit sharing plan in exchange for moving all of its issued stock into the new plan, Quinn writes.

When hiring a tax attorney or CPA to handle the formation of the corporation’s new retirement plan, entrepreneurs should look for someone with extensive knowledge of the Employee Retirement Income Security Act.

Melissa Clark
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Melissa Clark

Head of Content & Customer Marketing at Incfile
Melissa sets the vision for Incfile's content marketing and customer relationship management. Melissa has more than 10 years experience in various marketing roles, and a passion for supporting small businesses as they incorporate and grow. She loves sharing information that will help business owners maximize their LLCs, Corporations and Nonprofits. In her spare time, Melissa is an active member of The Junior League and enjoys running half marathons.
Melissa Clark
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