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Crack The Nest Egg?

Is taking money out of your 401(k) to start a business ever a good idea?

This story appears in the May 2008 issue of Start Up.

Question: I'm thinking of tapping my 401(k) to start a business, but I'm concerned because I'm 52 years old and retirement isn't that far away. I also have two teenagers who are going to be starting college soon. Any advice?

Answer: Unfortunately, there's no easy answer to your question. If you take the plunge and tap your retirement plan for the cash you need to start your company, there's no guarantee that your business will generate a higher return than you'd get by keeping your money in the large-cap mutual funds it's probably in right now. On the other hand, trusting your money to the stock market may not be such a safe bet either, considering the wild swings in the financial markets these days. The reality is, there are many factors to consider, from legal and tax consequences to your personal risk tolerance to your family's short- and long-term financial needs.

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