The landscape of retirement investment options can be an overwhelming one for even the most educated and savvy among us. 

And these options are only increasing.  One of the latest retirement investments people are considering is startup companies.  When we look at the meteoric rise of many businesses that were once just tiny startups, it’s easy to see why some want to put their money behind ideas and people that have the potential to earn big. 

But as is true with almost any investment opportunity, there are both pros and cons to this option and you should know both before committing your hard-earned retirement savings.

If you’re puzzled by why someone might choose to use their retirement savings to fund a startup, read on to find out why it may actually be a sensible thing to do.

How Risk-Averse Are You?

Using a nest egg to fund a business usually depends more on the person than on the funds involved. It’s not a question of how much, but rather the stage of life you’re in and how willing and able you are to take a risk with your savings. If you are a middle-aged worker with deep pockets, for example, you may be more willing to take a leap for a potentially greater payoff because you’d have more time to recover from a potential loss than someone on the eve of their retirement would.

It’s important to keep in mind that using the money to seed a new venture could also come with certain tax benefits.

The Pros of Investing in a Startup

1. It’s Easier

There are a number of ways the government and regulators have made it easier for you to use your retirement savings for investments. For example, the authorities let you structure your retirement using ROBS (Rollover as Business Start-ups) arrangements that can minimize taxes. The government also lets you take a loan from your 401k or take a taxable distribution from your IRA to buy stakes in businesses.

The purpose of many of these plans is to ensure your money is used responsibly, and an investment is usually a responsible use of cash. So getting your plan rolled into a business or borrowing from it to use as an angel investor should be relatively easy. You could ask your accountant to help you with the details, but most of it is pretty straightforward.