These days financial services firm, Lamaute Capital Inc.
(http://InvestSafe.com), is seeing a lot more investors worried
about their retirement and the miserly growth of their 401(k)
investments. A typical comment we get, says Daniel Lamaute, head
of the firm, goes something like this:
"When I left my job, four years ago there was $75,000 in my
401(k). I then rolled over to an IRA, now I still have $75,000.
I would like to open a self-employed 401(k), move my rollover
IRA to the new account and borrow from it to invest in my
business."
Whether you want to tap your 401(k) to invest in your business,
buy a vacation home, or get rid of your high-interest debt,
these are the qualifications and steps needed to get a loan from
a Self-employed 401(k).
You must have a business in order to open a Self-employed 401(k)
or Solo 401(k). It does not matter if you just started your
business or even that you work full time job in addition to your
business. As long as your business has no employees, or your
spouse is your only employee, than most likely you can establish
a Solo-401(k) plan.
The Solo 401(k) is available to any business including C
corporations, S corporations, partnerships, and sole proprietors
working part-time or full-time in their business. This includes
independent contractors and freelancers with 1099 income. A Solo
401(k) is not for you, however, if you have employees who work
more than 1,000 hours per year, or if you plan to hire employees
in the next year or two.
Once you have set up your Solo 401(k) there is no limit on how
much you can transfer/rollover tax-free from your other
retirement plans or IRAs into your Solo 401(k). In general, only
pretax contributions can be rolled over into a Solo 401(k). You
have to quit your job before you can rollover your current
employer’s 401(k) to your own Solo 401(k).
As soon as 15 days after the funds are in your Solo 401(k) you
can borrow up to a maximum of $50,000, but in no case more than
50 percent of the balance that is in your Solo 401(k) account.
A loan from a Solo 401(k) is easy to obtain because you are in
effect taking money out of your account. In many cases the
interest rate is fixed at prime rate for the five year term of
the loan. The loan payments, interest and principal, go back in
your 401(k) account.
You can use your 401(k) loan for any purpose. By taking a loan
instead of a distribution you can avoid the tax penalties
generally associated with early withdrawals. However, if the
loan is not paid back on schedule, the balance in default will
be subject to taxes and a possible 10% early withdrawal tax
penalty.
When investing for retirement it is wise to hold a diversified
portfolio and to manage your investments for the long haul. Some
small business owners see taking a loan from their 401(k) as a
method to diversify their portfolio beyond what is available to
them in their 401(k). But before rushing to take a loan from
your 401(k) to start a business, beware that roughly half of all
new businesses fail within their first five years of existence.
For more information about the Self-employed 401(k) visit:
http://www.InvestSafe.com
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