if you take your 401(k) out to do business, do you have to pay tax & how much is it?

Question

I am a mother of two and looking for a small business to do so i will have flexible hour for my kids. I need some money to start up and i am thinking may be i should take money from 401k. I wonder if i have to pay penalty for early withdraw and how much is it?

Thanks for professional anwser

Answer 1

The penalty for early withdrawal from a 401K is 10% of the amount withdrawn. In addition to that, you'll have to pay income tax on the amount withdrawn as ordinary income - the amount you pay will depend on your tax bracket.

Answer 2

there are HEAVY penalties, both now and in the future.

first off, you'll pay taxes for any accumulation up to this point, which could reduce your 401k by as little as 15% to over 50%, exact details depend on your personal income level and your tax status, but it WILL hurt.

second, you'll lose the benefits that you would've gotten in the future, all the accumulation and the potential accumulation, plus the late start of a new one, IF you do get a new one.

Would you really want to lose your past growth and the future growth of something as safe as your 401k to something so risky? I mean, I don't know you or your skills personally, but many more businesses will fail than succeed and holding onto your 401k is something that will help you rather than hinder you.

also
"small business to do so i will have flexible hour for my kids."
that's a contradiction. You and I both know that a successful small business is an investment of time and money, and if you can't devote yourself time wise, then the money investment will become wasted.

Please don't

Answer 3

Don't do it as you will pay a horrible price. It becomes fully taxable in this year; you pay a ten percent penalty for early withdrawal; plus it may put you over the limit to receive EIC; the list goes on and on. To start a business you would be better off to borrow the money; the interest you pay would be a fraction of what tapping your 401would cost you in dollars; and I would also urge you to look for a job instead of trying to start a business on your own. Too much downside and very little upside; but I have only done taxes for 36 years so what do I know.

Answer 4

You will pay VERY HIGH penalty for early withdrawal of money from a 401(k). The only ways you can avoid this are:

1) Buying a home for the first time
2) Financial hardship like unemployment, death in the family, etc
3) paying for a child's education

Everything else will incur very heavy penalties, like as much as 50%. What would be better is taking out a loan on what you have in your 401(k) . That is not really a good deal either because whatever you take out on the loan stops gaining interest. Also, you have to pay back within a very short period of time, so if your business does not take off, you end up paying heavy fines anyway.

Answer 5

The money withdrawn will be taxed as ordinary income and there will also be a 10% penalty.

There are certain exceptions to the penalty but starting a business is not one of them.

Answer 6

For an IRA the penalty is 10% and then it is taxable income. I would guess that it must be the same for a 401K. You might consider using it as collateral for a loan.

Answer 7

no longer that in basic terms. in case you in straightforward terms take the money from the 401(ok) and purchase the organization, then no. in case you rollover the money to a self-directed IRA and the IRA buys the organization, then theoretically particular, yet this could inquiring for an audit.