He Bought His Small Business with Retirement Funds

Ken Williams´s background is in banking and finance, and even with that experience, he says he "didn´t have a clue" about the little-known provision of ERISA (the Employment Retirement Income Security Act) that permits "wanna-be" business owners — including retailers -- to use money from their retirement accounts for start-up capital — no tax, no penalty, no loan repayment ("Cash Stash," April 18, 2006).

When Williams´s discovered that he could put his retirement funds to work for him, he immediately contacted Leonard Fischer of BeneTrends, Inc. and set about withdrawing what he says was a "big chunk" of his retirement savings to purchase the Pinehill Inn Bed and Breakfast in Oregon, Ill.

"I had already looked at how to fund the B&B, and I had a business plan started on it." Williams says, "I was looking at taking the (retirement) money out and taking the tax hit. That would have been a huge hit for me, but it was something I was actually contemplating." Fortunately for Williams, his sister came to the rescue. She read an article about BeneTrends and told her brother where he could read it online.

"I said to her, "You can´t do that.´ I´ve taught accounting. My masters is in accounting. I said, "There´s got to be a catch.´ "

He was sure there had to be more to it, but, he says, "When you´re in small business and an entrepreneur, you leave no stone unturned, especially one as attractive as this. So I went ahead and sent for the information package and did a lot of research. Probably about 10 days later, I said, "Move it. Let´s do it.´ "

He did. And, last August, he and his wife, Chris, bought their bed and breakfast. Today, he says he´s glad they did it. "If I hadn´t done it, I don´t know, but I might be out of money right now. It´s been good for me, and it´s come out well."

Williams´s advice for a retailer or anyone else considering pulling money out of their retirement plan to finance a business: First, get an accountant. Second, "I know people are tired of hearing this and they don´t like doing it, but put together a good business plan."

As for the notion of using retirement funds to launch a business, Williams says that he, 59, and his wife, 57, are at the leading edge of the baby boomer wave. "And we´re so typical of boomers that we´ve always found ourselves saying, "You know, what we need to do is invest in things that we do because — three or four years later — when the bigger wave of boomers comes along, they´ll do it, too.´ So, I can see the groundswell on this. Either it´s going to work well for everybody or the IRS is going to close this loophole."

Whether or not the IRS closes the loophole, Williams is happily transforming a barn behind the Pinehill Inn — an estate dating to 1874 — into a wedding hall and conference center.

In other words, he´s growing his business.