How to Finance New Business Startup With 401(k)
- 1). Review your latest 401(k) statement so you know how much money you have available. If you have on line access to your 401(k) plan, you can get a real-time balance, since the current balance might be more or less than what is shown on your statement.
- 2). Determine how much money you need to start your new business. It is a good idea to take as little as you can from your 401(k), since taking money out prematurely could subject you to taxes and penalties.
- 3). Consider taking the money out of your 401(k) with a loan instead of a straight withdrawal. Using the loan provision of your 401(k) allows you to avoid penalties for early withdrawal. Be aware, however, that if you leave your employer before the loan is paid off, you might be required to pay the loan back in full. This is an important consideration if you expect your new business to replace your current income.
- 4). Contact your human resources department or plan administrator for the loan paperwork. Complete the application in its entirety, including your account number, Social Security number and full name and address.
- 5). Indicate how you wish to receive the funds in your 401(k). You can choose to receive the money in a check or you can have the funds transferred directly to your bank account.
- 6). Contact the administrator of your 401(k) plan if you want to withdraw the money instead of taking it as a loan. Indicate whether you want the money transferred to your bank account or sent to you in a check.
- 7). Keep a copy of all forms related to your 401(k) withdrawal or loan. Keep these documents with your other important paperwork.
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