Buying a business with 401k

Discussion in 'The Okie Corral' started by RenoF250, Aug 30, 2015.

  1. RenoF250

    RenoF250

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    I am entertaining the idea of pulling up stakes and moving to one of my favorite areas of the country. Since it is fairly rural jobs in my field are difficult so I am looking at buying a business. Looked at rental cabins, building materials, and gas/wood/solar energy businesses. I have found some cabin opps I could buy outright and then my 401k would pay for my housing and some low annual pay. I would assume everything else could be bought by and for the business and would be deductible.

    With the direction our government is headed I am concerned for the safety of my 401k. I know if we had barry in office much longer it would be taken. Having it tied up in a business would make it harder to get.

    So far I like everything about the idea and that does not happen often.
     
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  2. ddbtoth

    ddbtoth

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    Keep in mind the taxes due for early withdraw. I really don't think Obama can do much more damage, he seems to be immersed into a huge foreign affair mes every where. Bernie get in, then yeah, unless you have a union backed retirement, and have paid off the democrats, then I'd be worried (and I am).
     

  3. OGW

    OGW SAF

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    OP, from what little you've written it doesn't appear you've thought this through well. I'm not trying to pee in your cereal, but buying or starting a business is cost intensive in most cases and you'll need to be well capitalized until you're able to make it profitable (think years, not months). Expect a lot of hard work, too.
     
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  4. RenoF250

    RenoF250

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    No, I am just starting to look at it but if I can buy an existing cabin rental business that I could live on and is already turning a profit why would I have to wait for a profit? I am not expecting big money, I would just live in one and then I figure $100/day/cabin during prime time. Seems like a pretty safe $50k income stream with only food and upkeep for expenses.

    Starting a business definitely takes awhile but I am not expecting the delay to profit if I buy and existing business.
     
  5. Cashgap

    Cashgap

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    Get some serious advice on this.

    If you mean you would early withdraw your 401k, you would pay a 10% penalty unless you are 59.5 or older, or are eligible for the limited exception for unemployed folks 55 and older.

    THEN you would pay your marginal income tax rate. Plus state implications that I don't keep top of mind, living in a no state income tax state.

    If you withdraw $100,000, look at getting a net of $60 to 70k after penalty and taxes.

    Don't forget, you may be selling while the 401k assets are down.

    If you mean you would do a ROBS (Rollover as Business Startup), these are HIGHLY scrutinized and must be executed without error to avoid consequences greater than penalty and tax.

    You'd want to see the balance sheet and cash flow statement of the business (and tax returns) and scrutinize them with a professional before investing a dime.

    Etc.
     
  6. FLIPPER 348

    FLIPPER 348 Bigfoot enthusiast enthusiast

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  7. RenoF250

    RenoF250

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    I am looking at the ROBS angle. Do not know anything about them aside from reading an FAQ today which made it sound easy. What sort of errors could cause the penalty? Are you protected if you have investment professionals handle it?

    I am just trying the idea on and seeing if I like the feel of it. If that doesn't work the financial aspect is irrelevant.

    One of the main purposes is to lower stress so I do not want risk. I can live with fairly low income assuming no expenses but I do not want to be worried about debts or tax problems.
     
  8. OGW

    OGW SAF

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    If you don't want risk and stress, stay the hell out of business. I can't say it any plainer than that.
     
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  9. kiole

    kiole

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    Stress free and owning your own business rarely go together. I'd try to finance the business so if it fails at least they can't touch your retirement accounts.

    What happens if your new business venture is involved in a lawsuit that your insurance doesn't fully cover. Now your retirement is at risk because it's not protected anymore as your 401k is now a bunch of cabins that's are business assets.

    What's the average occupancy rates in your area? What's the average rental rate? What's the cost to buy a cabin business and how many cabins will you get for that price? What are insurance/maintenance cost and other overhead?

    Also when you live in one of the cabins it's not free. If you can get 100$ a night and the average occupancy rate is 80% that cabin cost you $29,200 a year in lost revenue.
     
  10. certifiedfunds

    certifiedfunds Cosmopolitan Bias

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    Look into popcorn vending machines instead
     
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  11. Bruce M

    Bruce M

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    One of my early questions would be "why would someone want to sell a business that is running well and turning a decent profit."

    I would also ask exactly how could a President raid a 401K account; would it be done by executive order or does he set the tax rate and establish tax laws or is there a bit of input from Congress. Although that question may be best left for a different thread.
     
  12. ChiefWPD

    ChiefWPD

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    RenoF250, this is such a bad idea, on so many levels, I cannot begin to comment on what you are suggesting.
     
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  13. Rabbi

    Rabbi The Bombdiggity Lifetime Member

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    While that is certainly a great question....if you think about it, that could be one of the best times to sell a business.
     
  14. ChuteTheMall

    ChuteTheMall Wallbuilder and Weapon Bearer

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    Small businesses fail far more often than 401Ks.

    If the economy actually tanks, people won't be renting rural cabins; your only customers will be squirrels.
     
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  15. Khufu

    Khufu Pharaoh

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    Reno, also look at daily rental and go on something like VRBO. Look at how many days something is rented and average price in the area.

    Also dont forget 10% of the 401k go poof on early withdrawal penalty.

    What I would say this is a like is going all in on a hand of poker. You may win, you may lose. Do you have the stomach for going bust? If not, dont think about it.

    Also, when you start up a business, take how many hours you think it will take, double or triple it. Think 80+ hours a week...

    The rewards can be great, but to be successful you have to have stomach for risk, want to work hard, and be self-motivated (you have no boss telling you what to do; you have to be your own boss telling you to get crap done).
     
  16. JimBianchi

    JimBianchi Da Da CLM

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    Lots of great advice here.

    I'll add mine.

    I took $12k out of my IRA in 1998 and put it in a business. It was never designed to be sole source of income, just supplement my military retirement in a few years. It did that and more until the big crash of 2008/09. Everyone's disposable income evaporated at the same time my hip needed replacement.

    I closed the business and sold the assets after the hip would not heal properly in 2011.

    Someone here on GT did a cost comparison to my business and leaving the money in the IRA.

    It was almost a draw. While I made money for a few years, three were spectacular, the rest were just OK.

    If I'd done nothing I'd have a huge chunk of change in my IRA and be much happier.
     
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  17. RenoF250

    RenoF250

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    They bought the business in 2004 and are selling it to retire.
     
  18. RenoF250

    RenoF250

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    I am planning on going the ROBS route and to my understanding (very limited) there is no penalty.

    Also, this is not a startup, it has been running for some time.
     
  19. RenoF250

    RenoF250

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    Why? That generic statement tells me nothing.
     
  20. FLIPPER 348

    FLIPPER 348 Bigfoot enthusiast enthusiast

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