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401K Rollover
401K Rollovers are some of the most important decisions we make in our life time because for many this represents their life savings. I know it was for me. You really have to be careful not to do anything that will cause you to have to pay taxes and penalties on the rollover so it’s very important you talk to your tax professional. Refer to the 401K lesson to get more details about the rules for a 401K rollover.
I left a job that I had worked on for over 18 years so I had to do a 401k rollover into a different plan. At the time I thought my only option was to roll it into the new companies plan. I have since learned that I could have rolled it over into a self directed IRA, Roth IRA IRA’s and rolling over your 401K or I could have created my own 401K fund through a corporation. I also could have just left it where it was. If I left it where it was I wouldn’t be able to borrow from the funds in the account which frankly I don’t think is a good idea in most cases. Learn more from our credit lesson Many of us think we don’t have the funds necessary to start our own business because our life savings is usually in our 401K account. However, there are ways to do a 401K rollover so you can use the funds to start a business. Before I get into the details I want to warn you that you really need to be sure about the business because you are now playing with your life savings. The way the program works is you create a corporation and within your corporation you create a 401K plan. You perform a 401K rollover into the corporations plan. The corporation becomes the custodian for the plan and as such has responsibility for investing the funds of the plan. You will receive a check book for the plan and with the funds you would purchase the business in the name of the fund. You would manage the business and pay the fund back and for managing the business you will pay yourself a regular income. This is a really simplified version of this but you can get more detail at Guidant Financial. You may consider a 401k rollover into a Roth IRA if your personal situation makes it beneficial over a traditional IRA. One of the benefits of a Roth IRA rollover is after a seasoning period which currently is five years you can withdraw the funds without a tax or penalty. I’m certainly not advocating that you should be withdrawing your retirement money early but in the event you don’t have a choice at least try to plan to do it in a way that will allow you to keep your hard earned money. This could potentially mean that you would borrow money until the seasoning period is over and then take out your money and pay back the loan. This may be an option to help pay for a child’s college. ShareBuilder 401(k) - A big benefit for small business
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