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Should You Tap Your 401(k) to Start Your Business? Thousands of Americans are using retirement savings to start new businesses. Some thrive, others founder. Is the gamble worth it?

By Julie Bennett

Opinions expressed by Entrepreneur contributors are their own.

Should You Tap Your 401(k) to Start Your Business?

It sounds so easy. In this time of tight credit, you can still finance a new business or franchise by rolling your retirement funds into your new company. You pay no income taxes or early withdrawal penalties, avoid debt and have money available immediately to rent a space, pay a franchise fee, hire employees, buy equipment and pay yourself a salary. And this is all sound, the firms that arrange these rollovers say, because they are "based on long-standing provisions of the Internal Revenue Code."

For thousands of startups, these rollovers are working. Last year, 4,050 businesses--60 percent of them franchises--were launched with retirement rollover money, according to FRANdata, an independent research firm. These new entrepreneurs started ventures that range from data processing companies to flower shops, created more than 60,000 new jobs and added $8.3 billion to the nation's economy. And the lingering recession, says Steve Rosen, CEO of FranNet, a franchise broker firm based in Louisville, Ky., is only making retirement rollovers more attractive.

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