Can i use my 401k for my new business?

Question

Ive seen a company website that provides service in helping people with 401k savings that can be use for small business. I lost that website. Please help!

Answer 1

No, you do not want to do this, if you draw the money in your 401k before you are eligible you will pay huge penalties.  You will pay a 10% penalty, plus be taxed at your normal tax rate on whatever you pull out.  Also whatever you pull out becomes taxable income and could push you up into a higher tax bracket.  So if you draw 100k out of your account you will pay 30% in taxes plus 10% in the penalty, meaning you take home about 60k

Answer 2

The answer is YEs you can, if your 401k administrator allows roll-overs into a self-directed 401k or IRA. I also use equity trust at www.trustetc.com.

You may also utilize the borrowing provisions from your 401k which allow you to borrow up to 50% of your vested contributions up to a max of $50,000. As some else mentioned, you will pay interest and you must pay it back or be hit the taxes and penalties.

Mike's answer/comment above regarding you being put into a higher tax bracket is not really true. This is a common misconception repeated by many. If you understand how the tax code works, you are taxed at each level of your income. For instance, if you make 50k per year, you have reached the fed tax bracket of 25%, but you are not going to pay 25% of the $50k. You pay 10% for the first $8k, 15% from $8k-$32.55k, and then 25% from $32.55k-50k. That said, if you added income to reach the 28% bracket, you would only pay the 3% more tax on the amount above $78.85k.