Can i use my 401k to start a new business

Posted on by

Should you drain your 401(k) to start a business?

can i use my 401k to start a new business

There are three ways you can use IRA or (k) assets to start or buy a business. If you have at least $50, in your retirement accounts, you can get a free ROBS It allows you to use your (k) to start a new business.

can   your   can

Business loans work for many, but you might not like the idea of taking on debt, especially if you have funds of your own that you can bring to the business. The problem is that most people have personal savings tied up in investments or retirement accounts. Fortunately, there are ways to take cash out of a retirement account and invest the money in your business. Short of simply withdrawing money from your retirement account, there are two better options that allow you to tap into retirement funds without having to pay income taxes or penalties: 1 taking out a k loan; or 2 rolling over your balance into a new k plan, called a Rollover as Business Startup ROBS. Both of these options come with their own pros and cons, but the cons can be pretty significant.

There are ways to use IRA and k funds to finance your start-up business. There are significant legal steps. The key is rolling over the money into a corporate retirement account that permits you to invest in the business. A nonexpert would likely need the help of a financial planner or third-party retirement-plan administrator. These professionals set up a C corporation and establish a corporate retirement account. Since the person is buying shares of his or her own business, he or she is effectively feeding it money.

Bohnne Jones worked in the healthcare industry for 33 years until she was laid off in January Going back to school and picking up expertise in IT gave her a new start, but only a temporary one. A two-year engagement came to an end and then a position as a VP in a software start-up was over in eight months when the company started feeling the first strains of the oncoming global contraction. Jones wasn't ready to retire and had a life-long interest in design and decorating. The Decorating Den franchise caught her eye, but she was turned down.

Employees who withdraw funds from retirement plans early can be subject to taxes and penalties. When the opportunity to buy a business presents itself, some entrepreneurs may only have k assets to use as an investment. There are risks when using retirement funds as venture capital with the biggest being that if the business fails, you risk not only losing the business assets but your retirement savings. Other risks involve tax penalties assessed by the Internal Revenue Service. The three methods of using k assets to fund a business are to distribute the money, take a loan against it or roll it over into a business owners retirement savings account.



Funding a Start-up – How to Tap an IRA or 401(k)

Starting your own business can be the road to financial freedom, but getting that new business off the ground can be a real challenge. The initial startup phase of a business often requires a large influx of cash, and if you cannot get that money from anywhere else, you might be tempted to find it in your k. Pull out a copy of your most recent k statement to get an idea of how much money you have to work with. If you have online access to your account, log on to see the current account balance, as it could be more or less than what is shown on your statement. Determine how much you need to pull from your k to finance your new business. You need to have enough seed money to get started of course, but it is best to take out only what you think you will need. Raiding your k can be costly, from a tax perspective and from a future retirement perspective.

.

3 thoughts on “Can i use my 401k to start a new business

Leave a Reply