Does a 401(k) balance count as proof of funds for buying a business?

It can. Money in a plan at a former employer is generally straightforward to roll into the qualified plan a purchasing company adopts, which is how a large share of small-business acquisitions are funded. Money in a current employer's plan usually cannot be moved before age 59½ unless the plan permits an in-service withdrawal, and only the vested portion ever counts.

Can I use a Roth IRA to buy a business?

Not through the usual route. A Roth IRA may only ever be rolled into another Roth IRA, so it cannot enter the qualified plan a business purchase normally runs through. A separate route exists in which a self-directed Roth IRA owns the business outright, but it requires that the owner take no pay from it, guarantee none of its debt, and hire someone else to run it — which is closed to almost every buyer, because almost every buyer intends to work in the business.

How long does it take to get retirement money to a closing table?

Two to four weeks is typical for a rollover into a newly adopted plan, plus a setup fee. Started alongside a lender application rather than after it, that is usually faster than the financing it sits next to.

Why do brokers discount retirement accounts in proof of funds?

Because a screenshot of a 401(k) balance does not tell them whether the money can actually be moved. Whether the holder has left the employer, whether the balance is vested, whether an IRA was inherited, and whether a 457(b) is governmental all change the answer, and none of them appear on a statement.

Is a 457(b) usable for a business purchase?

It depends on the employer, and the account type alone does not say which. A governmental 457(b) — a state, a municipality, a public school — can generally be rolled. A non-governmental one is unfunded by law, meaning the assets sit on the employer's books rather than in an account the holder owns, and generally cannot be rolled anywhere.

Does a SIMPLE IRA count?

Once it is two years old, counted from the employer's first contribution, it rolls over like any other retirement account. Before then it can only be withdrawn, which makes the whole amount taxable and adds a 25% penalty before age 59½, so FundStamp asks the buyer whether they are willing to pay that and counts the account only if they say yes.

Can I use my 401(k) or IRA as proof of funds to buy a business?

Often yes, but not automatically, and not every retirement account qualifies. Money in a former employer's 401(k), a traditional IRA, a SEP IRA or a governmental 457(b) can generally be rolled into a qualified plan that a purchasing company adopts — a structure the industry calls a ROBS — and reaches a closing table in about two to four weeks. A Roth IRA cannot be rolled into that plan at all, an inherited IRA cannot unless a surviving spouse has retitled it, and an employer plan counts only up to its vested amount. Because an account type alone often does not settle the question, most proof-of-funds tooling either ignores retirement money entirely or counts all of it, and both are wrong.

A great many buyers of small businesses are not sitting on the purchase price in cash. They are sitting on it in a retirement account, and the first thing they discover when a broker asks for proof of funds is that nobody can tell them whether it counts.

It usually can. But which accounts qualify is a narrower question than most people expect, and it turns on facts that never appear on a statement.

The mechanism, in one paragraph

Buying a business you intend to run and be paid by means a structure the retirement industry calls a ROBS — Rollover as Business Startup. A new C corporation is formed, it adopts a qualified retirement plan, the buyer’s existing plan or IRA is rolled into that plan, and the plan buys stock in the corporation. The corporation then holds cash and uses it to buy the business.

This is not exotic and it is not a loophole. It rests on a specific statutory exemption from the prohibited-transaction rules that applies to employer plans and not to IRAs, which is why a ROBS always uses a 401(k)-type plan and never an IRA as the receiving vehicle. Providers have administered these for decades.

So the only question that decides any retirement account is narrow and answerable: can this account make an eligible rollover distribution into a qualified employer plan? The IRS publishes a rollover chart that settles most of it.

What generally counts

A former employer’s 401(k), 403(b) or profit-sharing plan, up to the vested amount.
A traditional IRA or rollover IRA, provided it was not inherited.
A SEP IRA, and a SIMPLE IRA that is at least two years old.
A governmental 457(b) — a state, a municipality, a public school.
A Thrift Savings Plan from federal or military service.

What does not, and why

A Roth IRA. This is the one almost everyone gets backwards, because a Roth IRA is in every other respect the most flexible retirement account there is. It may only ever be rolled into another Roth IRA, so it cannot enter a qualified plan at all. Note that a Roth 401(k) is a different animal — it is an employer plan.
An inherited IRA, unless the holder is the surviving spouse and has retitled it in their own name. Until that is done it cannot be rolled anywhere. For a surviving spouse this is fixable and often worth six figures.
A non-governmental 457(b). Unfunded by law: the money sits on the employer’s books rather than in an account the holder owns.
A pension with no lump-sum option, and an annuity that has already started paying. Once payments begin the contract cannot be moved.
Health savings and education accounts. Retirement-shaped, but they can only be moved into another account of the same kind.

The three facts a statement does not show

This is the real difficulty, and it is why retirement money is so often waved away. An institution reports an account’s type and its balance. Several types hide the fact that decides eligibility:

“IRA” does not distinguish a rollover IRA from an inherited one — one is straightforward, the other cannot be moved at all.
“401(k)” does not say whether you still work there, and below 59½ that usually decides whether the money can be withdrawn.
“457(b)” does not say whether the employer is a government, and the two possibilities are fully eligible and fully ineligible.

In each case the two possibilities are opposite, so there is no defensible guess. Guess high and a broker is misled about what a buyer can pay. Guess low and a real buyer looks poorer than they are and loses a deal they could have won.

Vesting, which is the quiet one

Only the vested portion of an employer plan can be moved. Employee contributions are always fully vested; employer contributions may sit on a three-year cliff or a two-to-six-year graded schedule, and unvested money is forfeited on distribution rather than rolled. A buyer three years into a six-year schedule may own considerably less of the balance on their statement than the balance suggests.

A plan statement shows the vested balance. It is the number to use, and a broker who knows the difference will ask for it.

How to present it to a broker

Separate the money by when it can arrive rather than by what kind of account it is. A broker’s question is whether you can pay, and a rollover completing in two to four weeks answers it — usually faster than the lender approval running alongside it. What loses deals is presenting a retirement balance as though it were cash, being questioned on it, and having no answer.

Concretely, name three things and you will be ahead of most buyers:

Which accounts you are counting, and the vested amount of any employer plan.
That the route is a rollover into a plan the purchasing company adopts.
How long it takes, and that you can start it now rather than at closing.

FundStamp counts retirement money that can lawfully fund a purchase, separates it from cash by when it becomes available, and asks you the one question per account that a statement cannot answer. Your broker gets a figure they can check rather than a balance they have to take on trust.

Get my proof of funds See an example

A caveat worth stating

None of this is tax or legal advice, and a ROBS is a structure with real ongoing obligations — the corporation has to be maintained, the plan has to be administered, and getting the prohibited-transaction rules wrong can disqualify the whole account retroactively. Buyers use a specialist provider for a reason. What is described here is which money can be counted and why, so that a proof-of-funds conversation with a broker starts from the right number.

Common questions

Does a 401(k) balance count as proof of funds for buying a business?: It can. Money in a plan at a former employer is generally straightforward to roll into the qualified plan a purchasing company adopts, which is how a large share of small-business acquisitions are funded. Money in a current employer's plan usually cannot be moved before age 59½ unless the plan permits an in-service withdrawal, and only the vested portion ever counts.
Can I use a Roth IRA to buy a business?: Not through the usual route. A Roth IRA may only ever be rolled into another Roth IRA, so it cannot enter the qualified plan a business purchase normally runs through. A separate route exists in which a self-directed Roth IRA owns the business outright, but it requires that the owner take no pay from it, guarantee none of its debt, and hire someone else to run it — which is closed to almost every buyer, because almost every buyer intends to work in the business.
How long does it take to get retirement money to a closing table?: Two to four weeks is typical for a rollover into a newly adopted plan, plus a setup fee. Started alongside a lender application rather than after it, that is usually faster than the financing it sits next to.
Why do brokers discount retirement accounts in proof of funds?: Because a screenshot of a 401(k) balance does not tell them whether the money can actually be moved. Whether the holder has left the employer, whether the balance is vested, whether an IRA was inherited, and whether a 457(b) is governmental all change the answer, and none of them appear on a statement.
Is a 457(b) usable for a business purchase?: It depends on the employer, and the account type alone does not say which. A governmental 457(b) — a state, a municipality, a public school — can generally be rolled. A non-governmental one is unfunded by law, meaning the assets sit on the employer's books rather than in an account the holder owns, and generally cannot be rolled anywhere.
Does a SIMPLE IRA count?: Once it is two years old, counted from the employer's first contribution, it rolls over like any other retirement account. Before then it can only be withdrawn, which makes the whole amount taxable and adds a 25% penalty before age 59½, so FundStamp asks the buyer whether they are willing to pay that and counts the account only if they say yes.

FundStamp is operated by FiBase Inc. General information, not legal, tax or financial advice.