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Financing through 401K loan

    • 50 posts
    June 7, 2013 8:59 PM EDT
    Taking a loan from your retirement account can get you through an emergency. Entrepreneurs may be able to use their 401k indirectly to fund a startup. However, borrowing against your 401k should only be considered as a last resort loan option.

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    • 20 posts
    August 19, 2006 3:16 AM EDT
    No mentioned is this.  If you are married, death is the same as leaving the company.  That full amount is due by your spouse immediately.  Do you want to leave her with that burden?  Save up and pay cash for it.

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    • 24 posts
    July 29, 2011 10:43 PM EDT

    • 101 posts
    April 13, 2010 10:38 PM EDT

    I don't know whether I was smart to do so, but I borrowed the max allowed from my 401K this very evening. My check should be in the mail within a few days. Starting my cafe is my future. If I make the income my cafe projects, I'll be able to put together a better future than a 401K at my current job could really offer. That, and I'm not likely to remain employed long - not by choice, but not something I'm opposed to. I could use the unemployment to get the cafe going. At the rate the allowed collection time is expanding, I'll be retirement age before it runs out. Working a day job makes starting a better job challenging, that's for sure. Anyway, I rambled. If you need money to finance a startup, and you have it in your 401K, it seems like a good deal to me.

    EDIT:

    I do have a question though. I'm going to make up numbers.

    My entire 401K Account = 10,000

    I borrow 5,000

    I lose my job.

    What happens to the other 5,000? I don't understand how the penalty system works. They say you get penalized on the amount of your loan. But, I would imagine that you'd receive the other half of your 401K? At least your vested allowance? If the other half disappears, while I get penalized to no end on the little bit I borrowed, that hardly seems right, but, when something hardly seems right, it's usually the case.

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    • 1 posts
    June 1, 2006 12:42 PM EDT

    Hello,

    I am in the process of starting a new business and recently learned about possibility of financing my startup through my 401K.  It sounds like a good concept (my 401k stays in tact while I get a loan against it).  Has anyone here used this method of financing?  Can you share with me +/- of this type of financing?

    Thanks,

    Ravi

    • 926 posts
    June 11, 2006 6:35 AM EDT

    Ravi:

    Some employer`s allow you to borrow from your 401k account - many do not.

    As previously mentioned, if you leave the company - your loan would need to be repaid or would become an early withdrawal and be subject to tax a nd penalty. Since cash is precious - I don`t recommend "wasting" 10% on the penalty.

    If you are talking about an IRA (not a company 401) :

    1. You cannot borrow against your IRA funds

    2. There are some "interesting" ways to use IRA funds to invest in your own business. Generally speaking, one should have $100,000 in their IRA to make this approach worthwhile.

     

    Robert Johnson

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    Business Growth Masters, LLC -
    Capital Catalysts for Entrepreneurs
    Home of the Scalable Business Plan and QuikStart Capital Programs
    http://www.bizgrowthmasters.com
    info@bizgrowthmasters.com


    • 926 posts
    April 14, 2010 6:10 AM EDT

    Matt,

    If/when you leave your employer - the amount you borrowed from your 401k will, if not immediately repaid, become a distribution which creates a tax obligation for you. So you would pay taxes on that amount as "regular" income plus the penalty for early withdrawal. [This is why I generally advise against borrowing you 401k funds if you are going to leave the company]

    Any vested funds still in the 401k would remain there. You could leave it with your employer or "roll it over" into either your personal IRA or the 401k of your new employer (if they have one).

     

    Good luck with the café.

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    Business Growth Masters, LLC -
    Capital Catalysts for Entrepreneurs
    Home of the Scalable Business Plan and QuikStart Capital Programs
    http://www.bizgrowthmasters.com
    info@bizgrowthmasters.com


    • 1 posts
    October 8, 2012 11:08 PM EDT

    It is a good idea to borrow money from your 401k account, But there are also some terms and condition for that. Although, the implications on 401k loans are very minimal and normally you get a long time to repay it, Following are some conditions when you should not take a 401k plan loans.

    a) When you are planning to leave the job.

    b) You are going to retire in a couple of years.

    c) You can not contribute regular.

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    401k Contribution Limits