Many Americans are looking to start their own business. Shopify allows anyone to set up an eCommerce website to get your business online. Their tagline is “Anyone, anywhere, can start a business.” If you are looking to start your own business on Shopify, but lack the needed capital, look no further than your retirement plan.

What is Shopify?

Whether you are looking to start a business from scratch, move a brick and mortar store online, or switch eCommerce sites, Shopify may be your answer. They are experiencing a boom with so many people affected by the coronavirus who are either looking to make more money, or would rather take their services online.

Shopify allows you to create a website based on the type of business you have or service you wish to sell. You can even turn your existing website into an eCommerce site. Further, they will help market your businesses, manage shipping and payments, and even help with raising funds.

The future is now for anyone with entrepreneurial dreams. Bear in mind, that most businesses fail before they catch on. You must ensure that you have a sound strategy before dumping your life savings into any venture. We are not financial advisors at IRA Financial, nor do we endorse Shopify or any other company. However, we do want to educate those who are looking at Shopify to start a business, and how you may be able to afford being your own boss.

Use Retirement Funds to Start Your Business

One of the biggest hurdles is coming up with the capital to start your own business. These are trying times for many who are out of work. Of course, you could look to a bank or other lender for a loan, but you don’t have to if you have been diligent with your retirement savings. The great thing about Shopify is that you don’t need a storefront to get started. Your business can be 100% if you want. You can always find a retail space if and when your business succeeds.

If you are looking to start a business, we can assume you want to be personally involved in it. Unlike investors, who are there to help get you going. Therefore, you generally have two ways to re-use retirement funds to start a business – the 401(k) loan or the ROBS 401(k) solution. Let’s explore each option to see if one is right for you.

401(k) Loan

If you have a 401(k) that you have contributed to, and it allows you to borrow from the plan, you may need to look no further. Usually, you can borrow up to $50,000 or 50% of the account value, whichever is less. You can use those funds for anything you want, including starting a business on Shopify. Remember, it’s a loan, so it must be paid back. However, since you are borrowing from your 401(k) plan, you pay yourself back!

Repayment is set by the 401(k) agreement, but usually you must pay it back at least quarterly, at an interest rate of at least Prime (usually one or two percent over it). Therefore, it’s a much better option than borrowing from a bank. Of course, if you fail to pay back the loan, there are consequences. The amount not paid back will be treated as a distribution. You will owe taxes on that amount, plus a 10% penalty if you are under age 59 1/2.

ROBS

What if you don’t have a 401(k) plan, or it doesn’t have a loan option? Then, the Rollover Business Startup (ROBS) solution may be right for you. ROBS allows you to use retirement funds to invest in a new business. You can use existing 401(k) or IRA funds to start a business or help fund an existing one.

Essentially, you create a new C Corporation, which adopts a 401(k) plan for itself. Your business must be a C Corp, as it allows for “qualifying employer securities.” You then roll over your current retirement funds into the new 401(k) and purchase the stock at fair market value. The proceeds from the stock sale allows you to purchase assets for the new business. Lastly, it’s required that you take a reasonable salary for the work you do for the business.

So long as the rules are followed, the ROBS is a great way to start your business on Shopify. In fact, if you need more capital, you can perform another ROBS.

Be Careful when Using Retirement Funds for Shopify

It’s one thing if you have extra cash lying around to start your own business. It’s another when you dip into your retirement savings to do so. Therefore, you cannot go into business for yourself haphazardly. Not only do you risk your current self, but also your future. Weigh the risks of starting your Shopify business. It’s a great platform to start or expand your business, but only if you have a sound business plan.

It’s important to work with a financial advisor and experts in your particular area. Devise a solid model before dipping into your retirement savings. Only then can you decide if the reward is worth the risk. IRA Financial can help set up your ROBS arrangement and ensure you are in full IRS compliance, but it’s up to you to do the work! Get started today and good luck!