Overlook Principle When Using A Retirement Plan To Buy A Business

I wanted to re-emphasize an issue that is frequently overlooked.

Remember you generally cannot access 100% of the funds in your qualified retirement plan account ( 401(k), 403(b), 457, 401(a) ) if you have not separated from your current employer. While the law allows for those “inservice distributions” most plans are designed without that feature as a way to reduce administrative costs.

You may have the opportunity to borrow from your 401(k); up to $50,000 or 50% of its value whichever is the lesser, provided your current employer’s plan has this provision (The Entrepreneur Retirement  Plan of America has this provision available).

Retirement plan loans typically must be paid in no more than 60 months with payments no less frequently than than quarterly principal + interest. The loan must be paid in full prior to rolling it over to another qualified plan or the outstanding amount will be deemed to be a taxable event thus taxes and penalties would result.

Principles With The Entrepreneur Retirement Plan of America

Important Principles of Saving and Investing for Retirement when using the Entrepreneur Retirement Plan of America .

The Power of Long-Term Compounding

The logic of retirement savings is very simple:  Investing more and sooner is better than investing less and later. Given the trend toward financial self-reliance in retirement, it’s extremely important that you save aggressively and invest prudently during your working years. Your 401(k) allows you to benefit from (1) tax-deferred compounding over many years (2) inexpensive, state of the art investment vehicles and (3) fully managed, pension-caliber portfolios. ERPA provides this.


Your plan’s managed portfolios ensure that your assets are diversified across a broad range of asset classes.  Though it may be tempting to chase last year’s best-performing assets, prudent investors recognize that they do not and cannot know what next year’s winners will be and thus remain diversified both within and across asset classes.

Dollar Cost Averaging

When dollars are invested in the plan on a regular basis, you will benefit from market fluctuations through a process known as “dollar cost-averaging.” When asset prices are high, your contributions will buy relatively fewer shares, when asset prices are low, your contributions will buy  more shares. The result: A lower average cost per share.

We encourage you to welcome volatility in the financial markets, not only as an inevitable fact of life, but as a means of accumulating valuable assets at attractive prices. This is especially true in the current environment, where market conditions have reduced the cost of long-term assets.