Business Opportunities Weblog

January 11, 2006 by Dane Carlson | 1 Comment

Entrepreneur:

That money in your 401(k) retirement account can look very appealing when you’re trying to finance your new startup. There’s a balance in there, it’s already your money, and you feel like it’s the quickest way to get your business off the ground.

The penalty fees for early withdrawal from a 401(k) account can be steep, so entrepreneurs need to think long and hard about the pros and cons of this financing choice, says Jordan E. Goodman, founder of MoneyAnswers.com and author of the Everyone’s Money Book series. If you’ve left your job and you’ve got a 401(k) balance, you can roll it into a rollover IRA and take out the balance, says Goodman, but you’ll have a 10 percent penalty (if it’s before age 59 and a half), and you’ll have to pay federal and state income taxes. If you’re still at your job, you can borrow up to $50,000 against your 401(k) and set up a payment schedule from your paycheck–though if you leave your job, voluntarily or involuntarily, you’ll have to pay all the money back in 60 days or face penalties. “Be sure that this entrepreneurial opportunity is going to work for you,” says Goodman. “Because if it blows up, you’ve still got to pay the loan back, and you’ve hurt your retirement.”

Photo by dyobmit.

In Financing, Planning | 1 Comment