Starting Your Business With a 401(k)

Posted by ShawnHessinger under Raising Capital
From http://www.smartmoney.com 4752 days ago
Made Hot by: BusinessBloggerPro on April 22, 2011 2:45 pm

Starting your business with your 401(k) is becoming an increasingly popular option for tax strapped entrepreneurs, according to this article from SmartMoney, part of the Wall Street Journal Digital Network. But the controversial practice, which often involves a "Rollover as Business Startup" to avoid penalties for early withdrawal, has drawn the attention of the IRS even though some business experts stoutly defend the strategy. What are your thoughts? Is this an option you would consider to raise money for your next business startup?

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Comments

Written by ShawnHessinger
4751 days ago

Don't disagree, Anita. I prefer a bootstrapping approach myself, as you know. The entrepreneur in the story is probably a bad example because he is starting a potentially labor intensive business, but the question always is, could you start your dream business with less? Could you cut back on your early expectations in terms of the size, products and services you plan to offer? Could you start as a consultant and grow your business from there or leverage partners, other providers or bundled outsourced products or services to deliver the same results at lower cost? I've learned that simply having a level of financial security while you are trying to bootstrap a business can be the most valuable commodity in the world. So sacrificing that security for the investment to grow more rapidly seems like a step in the wrong direction. My two cents.

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Written by smallbiztrends
4751 days ago

Shawn, not only is it a controversial practice from an IRS perspective, but I think it's not a wise idea to use retirement money in general, unless you're in your 20s. If you're past that age, then it's going to take longer to catch up for retirement and you are cutting your legs out from under you.

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