Investing Your 401(K) Outside
the Stock Market
by D Lamaute
A lot of investors are not happy with their 401(k) stock investments, and
are looking at alternatives.
A lot of baby boomers are losing confidence in being
able to earn enough from their 401(k) stock investments to live comfortably,
observes Lamaute Capital Inc. (InvestSafe.com), retirement investment
specialists.
A typical comment we get, says Daniel Lamaute head of Lamaute Capital, goes like
this: “When I left my job, four years ago there was $75,000 in my 401(k). I then
rolled over to an IRA, now I still have $75,000. I would like to open a
self-employed 401(k), move my rollover IRA to the new account and borrow from it
to invest in my business.”
Whether you want to tap your 401(k) to invest in your business, buy real estate,
or get rid of your high-interest debt, these are the qualifications and steps
needed to get a loan from a Self-employed 401(k).
You must have a business in order to open a Self-employed 401(k) or Solo 401(k).
It doesn’t matter if you started your business last week or several years ago,
as long as your business has no employees, or your spouse is your only employee,
than most likely you can establish a Solo-401(k) plan.
The Solo 401(k) is available to any form of business including C corporations, S
corporations, partnerships, and sole proprietors working part-time or full-time
in their business. This includes independent contractors and freelancers with
1099 income. A Solo 401(k) is not suitable for you, however, if in the next
couple of years you plan to hire employees that will work more than 1,000 hours
per year.
Once you have set up your Solo 401(k) there is no limit on how much you can
transfer/rollover tax-free from your other retirement plans or IRAs into your
Solo 401(k). In general, only pretax contributions can be rolled over into a
Solo 401(k). You have to quit your job before you can rollover your current
employer’s 401(k) to your own Solo 401(k).
As soon as 15 days after the funds are in your Solo 401(k) you can borrow up to
a maximum of $50,000, but in no case more than 50 percent of the balance that is
in your Solo 401(k) account.
A loan from a Solo 401(k) is easy to obtain because you are in effect taking
money out of your account. In many cases the interest rate is fixed at prime
rate for the five year term of the loan. The loan payments, interest and
principal, go back in your 401(k) account.
You can use your 401(k) loan for any purpose. By taking a loan instead of a
distribution you can avoid the tax penalties generally associated with early
withdrawals. However, if the loan is not paid back on schedule, the balance in
default will be subject to taxes and a possible 10% early withdrawal tax
penalty.
When investing for retirement it is wise to hold a diversified portfolio and to
manage your investments for the long haul. Some small business owners see taking
a loan from their 401(k) as a method to diversify their portfolio beyond what is
available to them in their 401(k). But before rushing to take a loan from your
401(k) to start a business, beware that roughly half of all new businesses fail
within their first five years of existence.
For more information about self-employed retirement plans visit
www.InvestSafe.com
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