Do you think this is a good idea? "Entrepreneurs turn to 401(k)s"

I would never urge a person to withdraw from retirement funds. This money will soon be pissed away in the business and you could well be left with neither a busines or the retirement funds.

Many people start business without adequate capital and hope business will always be good. They borrow to start business which is frequently a mistake and places retirement and home in jeopardy. The time to start a business is when there are resources to do it right and you are able to withstand being behind plan and ride out a bad economy.

I think this is a great question. First, I would like to preface my response with the following: though it is permissible for a retirement plan to invest in employer securities, adopting a 401(k) plan for the exclusive purpose of accessing your retirement to start or purchase a business violates Internal Revenue Code § 401(a), which requires that an employer adopt a retirement plan for the exclusive benefit of its employees. I elaborate more on this topic at www.RainsExchange.wordpress.com.

So do I think it is a good idea for a company to offer its retirement plan employer securities? Maybe. Employer securities are an investment option that can be offered to a company's retirement plan. So whether or not investing in employer securities is a good idea is predicated on whether the employer securities, objectively speaking, are a good investment. Because employers and retirement plan trustees are required by law to ensure the investment made available to the plan participants are prudent, you hope that the employer securities are a good investment, but this is not always the case, Enron anyone.

As for ROBS transactions, in my experience about 75% of the taxpayers who purchase ROBS transactions lose their entire retirement. The average taxpayer who purchases a ROBS transaction is either at or near retirement (let’s face it who else would have enough money saved in their retirement to start a business). Most of these people would not ordinarily qualify for a business loan without their retirement, so they access their retirement, secure an SBA loan and either start or purchase a business. Ultimately, when they do go out of business, they have not only lost their retirement, but also their homes and their savings and have mounting debt they cannot afford to pay. The final stage for these taxpayers is usually bankruptcy.

The good news is that there are some taxpayers that use ROBS transactions to start or purchase a business and are incredibly successful. I have several clients who have skillfully turned a couple hundred thousand dollars into several million. The taxpayers who are the most successful when using ROBS to start or purchase a business are those that (1) work with seasoned advisors including accountants and attorneys before and after the transaction (2) have started or owned other companies (3) let company numbers do the talking (4) work with reputable plan administrators (5) regularly evaluate their company’s performance to ensure that the retirement plan’s investment in employer securities is still prudent. Starting and owning a business is serious business (no pun intended, ok maybe a little one), whether or not you use your retirement, personal savings or debt to capitalize your business, the risk of loss is still pretty high.

ALWAYS CONSULT WITH QUALIFIED LICENSED PROFESSIONALS WHEN ENGAGING IN COMPLEX LEGAL TRANSACTIONS.

THIS INFORMATION IS PROVIDED FOR EDUCATIONAL AND INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE RELIED ON FOR ANY PURPOSE.

Since the other main source of deferred income is an IRA, and since bank IRAs currently pay under 2%, I think that a 401(k) is a very intelligent alternative