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Should You Risk your Nest Egg to Start a Business?



This article is published in collaboration with Scutify, where you can find real-time markets and stock commentary from Robert Marcin, Cody Willard and others. Download the Scutify iOS App, the Scutify Android App or visit

In uncertain financial climates, more and more people are continuing to make the leap to start their own business, despite the obvious risks and challenges involved.

One of the biggest of those challenges for many - at least initially - is finding the funds to get the business, whatever it might be, off the ground in the first place. The number of banks willing to extend credit has decreased significantly and so finding one to finance the launch of your garage door repair company in Atlanta or your beauty salon in Boise can be tough, if not almost impossible.

Faced with this reality it is little wonder that it is very tempting for someone to think about dipping into their retirement fund or 401K to get the money they so desperately need to start their dream business. But is that worth the gamble?

It all sounds very easy in theory. Rolling a retirement fund that already exists into a startup business does not incur the usual early withdrawal penalties and the funds are not subject to income taxes either. Certain 'convenient' sections of the tax code allow for these funds to be used to lease the space needed to set up an office, to buy the equipment needed to get it off the ground and even to pay employees. Sounds like a great idea, in theory at least.

For some startups this works well. According to FRANdata, which is an independent market research firm, over 4,000 new businesses were born in this way in 2015 alone, everything from fast food franchises to flower shops.

However, this route to business independence is not as easy as brokers make it sound. There is of course the obvious danger - that you are putting your nest financial future and hopes for a golden retirement on the line, a huge gamble in itself - but an entrepreneur making this decision must also realize that they will be committing to pay their rollover plan provider a fee on an annual basis for as long as the new business still exists.

Some also say that you will also potentially face scrutiny from the IRS at tax time. It has not really happened yet, but there are some tax experts who feel it is just a matter of time before the IRS does begin taking a closer look at such transactions.

Right now though although some financial experts believe they are operating in a gray area, working with a company offering a retirement roll over plan like this is legal and above board. They can work, businesses have been started and become highly profitable, enabling their owners to build an even larger nest egg than they had before. In the end it all comes down to the biggest risk a small business owner has to face anyway - will this business succeed? And as we all know, no one can answer that question with certainty when they set up shop.

The best advice? Before you decide to 'tap' your nest egg meet with a financial adviser to go through all of the possible outcomes and scenarios, so at least you'll be more informed of the risk and can then make an investment decision in the same way they are all made, with an acknowledgment of risk but a hope for a very positive outcome.

This article was written by Adam Monson for on .

This article published in collaboration with Scutify, the best app for traders and investors. Download the Scutify iOS App, the Scutify Android App or visit

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