Thu. Sep 19th, 2019

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How to use 401k to Start Your Vending Business

3 min read

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We often hear scenarios where an aspiring or new entrepreneur may want to begin a vending business but only have his/her 401k assets to use as an initial investment.  We are not going to kid you; there are risks when using your retirement funds for anything other than retirement.  The largest concern being that if the business fails, you risk not only losing the business assets but your retirement savings, as well. Other risks involve tax penalties assess by the Internal Revenue Service if you do not complete the process the right way.  The gain, however, is if you follow the right procedure and invest strategically, you will have your own business that requires comparatively minimal time investment with consistent returns. The 3 different methods of using 401k assets to fund a business are to: distribute of the money, take a loan against it or roll it over into a business owner is retirement savings account.

Distribute Assets from 401k

Step: 01

Call your 401k plan administrator & request a distribution package.

Step: 02

Fillout the paper work; decide on partial or complete withdrawal.

Step: 03

Sign & submit the form. Distributions are added to yearly gross income. Distributions before age 59 1/2 have an automatic 20% percent federal withholding & are assessed a 10% percent IRS penalty on top of income taxes.

Step: 04

Use the funds to purchase the business.

Take a Loan

The IRS allows you to borrow 50% percent of your 401k up to $50,000 for any reason without paying taxes. The loan must be repaid with interest within 5 years or upon employment termination.

Step: 01

Locate out if your 401k allows you to take loans against it. Apply for the loan forms if your plan allows the loans.

Step; 02

Fill out the loan for the lowest amount amount you need. You are allowed to take more than one loan out at a time, so it is wise to reduce interest incurred on loans until you need the money. Submit your form.

Step: 03

Use the funds to purchase the business.

Open Business owner Retirement Savings Account

This options, by far, the most common option.  You must process your paperwork properly. We do not recommend DIY options on this particular method.  The tax ramifications for errors can be extensive.

Step: 01

Find a CPA that administers Business owner Retirement Savings Account (RSA) which allows you to rollover your Individual Retirement Accounts (IRAs). This is an expert IRA that allows the IRA to buy stock in a personal company. The CPA will not only setup the account, but must become the plan administrator.

Step: 02

Open a rollover IRA with the CPA designated as the Business Owners Retirement Savings Account.

Step: 03

Call your 401k plan administrator and request direct rollover paperwork. Fill out the direct rollover paperwork so the 401k assets go directly to the rollover IRA. The federal government will take 20% present.

Step: 04

Open a corporation in the state you reside in through the secretary of state. File articles of incorporation & pay any registration fee.

Step: 05

Instruct the CPA rollover administrator to purchase stock in the new corporation. Use the assets in the general operating account to purchase the new business.

As you can see, there are options when deciding whether to use your 401k & several ways to do it.  If you have made the decision to proceed, we will recommend that you talk with your Financial Advisor.  After all, we are not experts on this topic! However, we would love to talk with you more about purchase your vending machines with the Discount Vending Store once you are ready to purchase your vending machines.

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