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.