Businesses You Can Start Using a 401 k – Where to Start

Have you considered starting a business but you’re not quite sure what kind of business to start? There are hundreds and even thousands of ideas for businesses, but the only problem is that you don’t know which one is right for you. One of the best things you can do is make a list of the types of businesses that fit your interests and talents. Here’s one idea: Start a catering business. Sounds like a breeze doesn’t it?

• There’s just one problem – what business should you start? There’s some risk involved in using your retirement funds to finance a business, so it’s important you hash this out first. The biggest obvious risk? If you withdraw all of your 401 (k) to begin a business, you’ll have less money available for your eventual retirement, which means it’s as easy as that. It might sound good if your retirement accounts had grown to fill your needs, but if they don’t, you’re sunk.
• Another risk with starting a business is financing it. It sounds more appealing to put your money in a low-cost funds and let them do the work, but that’s not how the system works. Most large companies use venture capital funds, which come from private investors. These funds cost several percent a year, but the upside is that the company has access to a low-cost source of funds, so if things go well, the company can keep expanding without spending too much on new employees.
• Another issue is taxes. Business owners often think they’re getting a tax break by using retirement funds. However, these funds are subject to taxes. The money you save may only be taxed once, but that one tax benefit isn’t the only thing to watch out for. There are also state and local tax benefits to using a 401(k) for business expenses. Look into both these options before proceeding.
• Then there’s social security benefits. Many business owners assume their employers will take care of them, but in many cases this isn’t the case. Even if you’re on an individual retirement account, many social security programs don’t have any provision for businesses. So it’s very important for entrepreneurs to ask the question: Do I qualify for Social Security Disability? Only the small business owners who haven’t dependents can apply. This applies whether you’re self-employed or employed by someone else.
• If you’ve determined you need to contribute to your 401(k), you need to look at the terms of that contribution limit. Some business owners find the contribution limit too low and thus elect not to participate. On the other hand, some employers make contributions too high. The result is usually that business owners have to pay taxes even though they’re not receiving any benefit. So, it’s important to learn the difference.
• As with all areas of your financial portfolio, investing for retirement should involve both education and planning. Business owners can meet the eligibility requirements for their 401(k) by making regular contributions. These regular contributions can help business owners maintain the minimum required balance, which will reduce the risk of financial setbacks in the future.

A safe harbor 401(k) is a special type of nonqualified plan for business owners. This plan allows employees who ordinarily would not qualify for a traditional, defined benefit, Roth, or traditional IRA to contribute money to their retirement accounts. Although eligible employees are still required to fund their own contributions, the total amount they contribute to their retirement account is tax-free and deferred until distribution. Safe harbors also provide employees a way to save for unexpected health insurance costs or educational expenses that might otherwise be beyond their reach. Many business owners find that they simply don’t have the time to invest for retirement benefits while they continue to work, and a safe harbor plan allows them to save and spend in peace.