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Thread: Finance Using Your 401(k)

  1. #11
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    Wow, that does seem risky, though BillR made a good point saying that if it were a skilled professional who needed startup capital, emptying ones 401k might not be as risky as a hot-headed younger guy who just wanted to try something new.

    We actually just posted a story about **Spam removed** or buy a franchise. Seems more common in today's economic environment to take a risk with this money that you've earned.

    But there are always the venture capital firms that want to finance new business. Kristine, maybe that would be the best way to go, so then no one is losing out on any money right off the bat, right?
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  2. #12
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    BillR - you're referring to a loan from your 401(k). My comments about the penalty only applies to taking a distribution. You can take distributions for certain circumstances if you are still employed - and, not have to pay them back.

    Not all employers allow loans - but, I think most of them do these days.
    Steve B

  3. #13
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    I'm always of the opinion that some risk is good. But like Vangogh said, that doesn't mean just jumping at any old idea. But if I felt strongly about the business, sure, why not?
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    Bill I can understand your point, but I'd still say it goes against the point of a 401(k). The whole point of the 401(k) is to put aside money that you won't touch until retirement so you know it'll be there.

    If you start taking it out to finance one thing it becomes easy to use the money to finance another and you'll probably find there won't be anything in there when retirement comes.

    There are plenty of other ways you can finance a business.
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  5. #15
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    As I said before, if it's such a good business investement you should be able to convince a bank to give you a loan. That will avoid a 10% penalty and leave your retirement plan where it belongs.
    Steve B

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    Steve I'm thinking the same thing you are. If the investment is that good there should be plenty of other sources for funding.
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  7. #17
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    Everyone here brushed up on good points. "Borrowing" from ANY type of retirement plan is extremely risky. The actual costs you'll incur to "borrow" from a 401(k) specifically make other avenues more attractive. Especially when you factor in the risk of losing your entire "loan". Money that is earmarked for retirement should stay that way.

    dcampbell, Very interesting idea about forming the new business and having the corporation take over your 401(k). But I would think that as an "employer", you'd probably be violating your fiduciary obligation by investing virtually all of the assets in the 401(k) into the business.
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  8. #18

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    Bringing back an old thread.

    Here is my experience with 401K's. In 2001 my rollover 401K/Ira lost $40k when the tech bubble burst. It took me 6-7 years to recover that lost money. I lost faith in my money manager because the whole time I lost money she kept making money on my monthly contributions and through other fees. All the while she is taking my money and I'm getting my butt kicked I never get a card or a call.

    In 2002 I moved the money to self directed IRA/no load finds. I don't have to pay someone to lose my money, I can do it by myself. Then in 2006 I cashed it all out and put it into rental property. I paid all the penalties and taxes and made it all back in a year. Now my "retirement" funds give me money each month now and in the future. I don't have to wait 20 years to realize a tangible benefit from my retirement money.

    No this plan is not perfect. There have been bumps in the road. However, last year my wifes 403B lost $20K. My rentals held their value and paid me money each month.

    So, in some cases it may make sense to cash out and finance your business with your 401K.

  9. #19
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    You make a good point. A lot of people, me included, are watching the value of their 401K accounts sink like a stone right now. Of course, I have a lot of years before I will retire, so there is time for it to rebuild, but for those who are closer to cashing the account in, moving the money to another venue might not be a bad idea.

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