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    2 Replies Latest reply on Aug 5, 2010 6:05 PM by amspcs

    Using a State retirement account as collateral?

    Beatnik Newbie
      I am an independent contractor for a large package delivery company. Recently; due to government pressure; the company was forced to introduce a new business model which no longer allows contractors to own just one "route", or work area. beginning in October, we must own at least 3 of them.

      I plan on purchasing 2 more work areas. I have 50% to put down, but the seller needs cash up front.

      My wife has a state retirement fund that would take care of most of the balance, but we are retiring in less than 10 years and I don't want to cash it out. The penalties and taxes n early withdrawal are substantial, and when the retirement payments are activated at age 55 It will pay out as much as an account that is worth about 4 times as much in a standard IRA, etc.

      I have 2 options. Sell my business of over 20 years and lose my source of income, or purchase the other 2 work areas... so I am buying regardless. I'm just wondering if my wife's retirement account can be used as collateral on a loan.
        • Re: Using a State retirement account as collateral?
          FinanceOne Wayfarer
          The simple answer is yes. However, a lot of State and Municipal retirement funds do no allow for early withdrawl so this type of asset is not always considered liquid. If it isn't a liquid asset it can't be pledged as collateral. You may want to check on the terms and conditions for early withdrawl. Either way, I would only use retirement funds (pledged or liquidated) as a last resort.

          If you are putting 50% down on the routes then you should be able to find financing. There are many standard and alternative options out there for business financing but without more details I can't provide specifics. What exactly is being purchased? Just a book of business or is there transportation equipment involved? Are there aged receivables that can be factored with the purchase? Is there any collerateral with the routes that can be pledged?

          Please provide more information.
          • Re: Using a State retirement account as collateral?
            amspcs Ranger
            I am not a financial planner by any means. But any advise from any source I've ever heard in my life is always to the effect of: Don't play with your retirement savings.

            I think you would be very wise to consult with a good trustworthy financial planner BEFORE you take this step.