Welcome to the Small Business Online Community.
First of all, withdrawing from your 401(k) over the age of 59 1/2 will avoid the 10% IRS penalty for early withdrawal, however, it does not avoid federal and state income taxes. You can elect to have money put aside for those said income taxes, but starting a business does not waive those income taxes.
Second, I am a bit concerned by your statement about a business plan. You are planning on utilizing your retirement funds on an idea that is not thought completely through enough to complete a business plan? That is taking a huge risk, and it could go either way. Have you thought about reaching out to a consultant for assistance with this venture?
My concern is that you are going to make a jump here without making sure you have your parachute on.
Welcome John, Dan gave you a great answer.
Your statement about "writing the business plan for a business that is in a formation stage", is NOT AN UPHILL BATTLE.
A business plan is MANDATORY. The business plan is YOUR road map to success.
The plan establishes goals and enables you to measure progress.
DO you have an accountant??
Good luck, LUCKIEST
Hello jcobankco. The only way that I could think is if you withdrew money from the 401(k) in smaller chunks and in different years. For instance if you needed $100,000 you could have taken out $50,000 in 2011 and $50,000 in 2012 to spread the taxes across multiple years. This may or may not be feasible for you now.
While CorpCons08 highlighted the risks of jeopardizing retirement funds for a new venture I would reiterate that the statistics are not in favor of new business success. Hard work and determination can be the differentiating factor. Only you can know your risk tolerance and I wish you the very best with your new endeavor!
Another thing to consider is taking a loan against the 401(k) rather than taking the money out as a withdrawal. There is a good article explaining how that would work, and if it is an option for you, I would consider doing this rather than a withdrawal. Here is the article.
I am looking to purchase a property to house my new business. Obtaining a small business loan from a, local bank seems an up hill battle because of the strict requirements involved in writing the business plan for a business that is in a formation stage, among other things.
My option is peharps cashing out on my retirement(401k) accounts where I have enough funds for the transaction. I am over 59 1/2 years old so I beleive I can withdraw without penalties. My concern is being hit with a lump sum ordinary income tax payment. Is there any vehicle that can spread out tax payment over years for a new business that I can explore?