Ask the experts section
Question: Can I use my 401(k) to buy a business?
Answer: Yes, you can use cash from your 401(k) or IRA account to purchase a business. And, it can be done without incurring early distribution penalties.
Using Your 401(k) to Buy a Small Business
It takes a creative and determined buyer to purchase a small business in today's lending environment. If there's any doubt that small-business lending has yet to recover in any meaningful way, look no further than Ami Kassar's new contribution to this blog: Searching for Capital. While frozen credit markets have made it difficult for small businesses to get loans for expansion and working capital, they have also had a major impact on the business-for-sale marketplace.
Linda Jamerson and her husband, Ken McDonald, are typical of many who have tried to buy an existing small business in the last three years. Like most business buyers the couple wanted to work for themselves. But as high wage earners they also wanted to replace their income as soon as possible, which is why they decided to buy an existing business rather than start one. The couple spent two years looking for the right business - that's the industry average, by the way - and had two deals fall through before finding an ideal opportunity in Chicago, the Aluminum Case Company.
"Our criteria was a manufacturing company with a good reputation and growth potential that had been ignored," Ms. Jamerson said. "Aluminum Case Company had a large and varied customer base, a unique product niche, a good reputation and capacity for huge growth. They had no Web presence and had not automated their engineering or equipment, so we felt we could make a quick impact on sales."
What did not happen quickly was persuading a bank to help them finance the deal. "We were discouraged at how little funding our regular bank - and a few others - were willing to lend," Ms. Jamerson said. She did a Google search on the keyword term "financing your business" and found Guidant Financial of Bellevue, Wash. - a company that specializes in self-directed I.R.A.'s and alternative small-business financing.
"We have seen significant growth in our business since the end of 2008 and early 2009 when the markets collapsed," said David Nilssen, Guidant's co-founder and chief executive. "What is interesting is that today's small-business and franchise buyer is aware of the credit crisis, and they are investigating their funding options much earlier in the process." Between 2009 and 2011, he said, the number of inquiries at Guidant increased by 196 percent.
Companies like Guidant and DRDA, a Houston-based accounting firm, facilitate the process of rolling over funds from a 401(k) to purchase stock in your own company. "Rollovers do not operate on a debt model," Mr. Nilssen explained. "They allow a person to invest in a business without paying interest, making payments or having a payback window."
Read the rest of this NY Times article | 
ether their sons and daughters will be taking over the family business when they retire, and I have been thinking about 
