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Smart New Financing Tool For The Small
Business Owner
© 2002 By Daniel Lamaute
Pressed for cash, many people will take money out of
their individual retirement account (IRA) as a means to get
quick access to capital.
They do this even though they have to pay taxes and
generally if they are younger than 59 ½, also pay a 10%
penalty on the money
they withdraw.
Only as a last resort should one touch their
retirement savings for anything other than retirement
expenses. But, in those cases
when you need to tap into your retirement savings, a way to
get money out of your retirement account without paying the
penalty and deferring the tax was just made available
beginning in 2002, as a result of a tax law change.
Under the new law, those with a small business and no
employees or only a spouse as an employee can establish
Solo-Owner 401(k) plans
and take a loan from those plans. The loan from the
Solo-Owner 401(k) is not treated as a withdrawal. As such it
is not subject to tax
and the 10% penalty for early withdrawal as long as you
repay the loan on time.
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You can roll over or transfer the funds you have
in your IRAs, 401(k), 403(b), or other qualified retirement
funds into your Solo-Owner 401(k) and then borrow from the
balance in your Solo-Owner 401(k) plan.
Employees of large corporations for the most part
always had the ability to borrow from their 401(k).
Now small business owners, such as freelancers, consultants,
and entrepreneurs, who have left the corporate world also
have that choice. They can borrow up to the lesser of
$50,000 or 50% of the balance in their 401(k).
A Solo-Owner 401(k) plan gives small business owners the
opportunity to defer up to $40,000 per year in a tax
deferred retirement plan and the flexibility, should they
ever need it, to borrow from their retirement funds.
The Solo-Owner 401(k) plan goes under different names
depending on the provider of the plan. Make sure you are
aware in advance of the fees that may be associated with
rolling over or transferring your money into or out of your
Solo-Owner 401(k) plan.
For more information on the Solo-Owner 401(k) plan and other
ways to get money out of your retirement plan while
minimizing the taxes
and penalties visit www.InvestSafe.com
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Daniel Lamaute is a Retirement Investment Specialist and
principal of Lamaute Capital, Inc. member NASD/SIPC. He can
be reached on
www.InvestSafe.com
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