Everyday entrepreneurs make a mistake that make Uncle Sam smile!
They decide they want to start a business, they need some cash to get started so they withdraw funds directly from their retirement account. Guess what happens.
Immediately they give away 40% of their hard earned retirement account. They worked for years and sometimes decades to save these funds, and just like that they give it all away simply because they are uninformed.
Let’s imagine a $100k retirement account. You decide you want to pull it all out in November, so what happens?
First, if you aren’t old enough yet, you pay a penalty of 10% right off the top. $10,000 gone just like that. But the bigger problem is that you have already worked 11 months this year and let’s assume you brought in a decent wage of $50,000 so far. But now you just took another $100,000 in taxable income which probably brought you up to a 30% or more tax rate. So there goes another $30k of your retirement account.
So what can you do instead? Are there any better options?
There is a very specific 4 step process to be able to use your retirement funds to fund your business without paying taxes or penalties.
Step 1 – Establish a corporation with a customized retirement plan
Step 2 – Rollover your current plan into the new corporation’s plan
Step 3 – Your new plan purchases stock in a new corporation
Step 4 – Your new corporation now has the capital to start
There are 2 companies that specialize in helping entrepreneurs work through this process. BeneTrends and Guidant. At ProjectionHub we have actually partnered with BeneTrends to help entrepreneurs work through this process.
Learn more about the process to use your retirement account to invest in your startup here.