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the writing is on the wall at my job-- not going to have a job very soon due to budget cuts ---the question is I have a nice little sum in my 401. I am thinking of taking that money and putting into my business that I have on the side. How much of the money do I need to set aside for taxes.15% -- 20%-- 25%?? I was going to get the money from the bank to expand but they want to charge me 18% interest(which pisses me off to no end since the middle class bailed the butthead banks out) but thats another thread. What say you financial guru's
How much money are we talking about?
Look at your tax return last year what Tax Bracket are you in?
Not 100% sure but I think the extra 10% penalty applies to 401K also. If you are under 59.5.
I have a nice little sum in my 401.
I am thinking of taking that money and putting into my business...
What say you financial guru's
1) what sort of growth/return is the 401 getting?
2) short term... you're better off (focusing on) getting another job
3) longer term... what longer term?
Sorry about your job situation -- Many folks have been 'forced' to tap their 401K's to make ends meet, but, it's not a good idea, and should only be considered as a last resort. A couple of major financial considerations are:
1) 10% penalty if you are less than 59-1/2
2) Taxed as regular income (Your bracket in the year of withdrawal will determine that) -- 25-33%
3) Loss of potential appreciation on funds that are likely (now) pretty close to the bottom
(Some 401K's have recovered; How has yours done?)
4) Loss of deferred income status on withdrawal-replacement funds
Hypothetically, suppose you withdrew $100K - comprised of 80K in your contribution and 20K company contribution. You would lose $10K penalty off-the-top (unless you roll-over your 401K into another IRA or 401K account. You would then pay another $30K in taxes (30%, assuming the 100K 'withdrawal-income' put you into the 30% bracket). Then, let's assume the market recovers 20% over the next 2-3 years (That's another $10K you would not gain). Further, if you then decide to replace the 100K with post-tax dollars (25% bracket), it would cost you $125K (or another 25K) --- BOTTOM LINE: Your net after 'costs' from the $100K withdrawal could be as low as $25K!
Oy! Don't do it. What if your business idea fails. Then you have no job and no savings for retirement. 401k savings- no matter how small- fall under the "DO NOT EVER EVER EVER TOUCH" bucket. Unless you want to live in a box and eat cat food when you retire, it's not worth the sunk 25-40% loss to withdraw early.
the writing is on the wall at my job-- not going to have a job very soon due to budget cuts ---the question is I have a nice little sum in my 401. I am thinking of taking that money and putting into my business that I have on the side. How much of the money do I need to set aside for taxes.15% -- 20%-- 25%?? I was going to get the money from the bank to expand but they want to charge me 18% interest(which pisses me off to no end since the middle class bailed the butthead banks out) but thats another thread. What say you financial guru's
You're better off paying the rip-off 18% interest rate to the bank.
401Ks and IRAs usually can not be touched in the event of bankruptcy. If your business goes bust and you can't pay the loan, they can't go after your retiement money. But if you use the retirement money and you still go bust, you're not only out of business, but you're starting from 0 in your retirement fund as well.
the writing is on the wall at my job-- not going to have a job very soon due to budget cuts ---the question is I have a nice little sum in my 401. I am thinking of taking that money and putting into my business that I have on the side. How much of the money do I need to set aside for taxes.15% -- 20%-- 25%?? I was going to get the money from the bank to expand but they want to charge me 18% interest(which pisses me off to no end since the middle class bailed the butthead banks out) but thats another thread. What say you financial guru's
Terrible idea. Move it into your own IRA so that you make your own investment choices regarding it, and manage it that way, but don't mess with it. You will get hosed six ways from Sunday. If your side business is profitable, the profits should be something you can plow back into the business to expand it.
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