How to Set Up a C Corp & 401(k) to Finance a Business
Establishing a C-Corp is very easy and can be done online in little time. Withdrawing money from a 401(k) plan involves numerous restrictions and potential consequences. There are several ways this can be done, to achieve the goal of withdrawing money to invest or start a business. The most important considerations are that 401(k) plans allow certain withdrawals for certain reasons only, and depending on your financial circumstances, this can be a relatively easy way to achieve the goal. In addition, other considerations include the fact that certain withdrawals carry tax consequences, special penalties and suspension from participation in the plan for a period of time.
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Instructions
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Research the plan provisions and rules. You can obtain the plan document, and summary plan document from your company's 401(k) website. The website address would be provided to you on your quarterly statement that is mailed to you.
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Determine if any normal distribution events have or will occur. Leaving the company, or becoming disabled would allow for a partial or full distribution. These distributions will carry the ordinary income tax plus a 10 percent penalty if you are under age 59 1/2. All of these options should be considered carefully as they may have long term or unintended consequences.
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Determine the withdrawal options for which you are eligible. The best option is a loan, the maximum allowed is $50,000 or 50 percent of your account balance, whichever is less. This can be used for any reason and carries no tax consequences. If this is enough money, this is always the best solution.
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Examine secondary distribution options if additional funds are needed. If you have rollover funds that you contributed to the plan from another 401(k) you can take that out without restriction. The consequence is that you will owe ordinary income tax. If you are over the normal retirement age of the plan, typically age 65, you may be able to withdrawal all of your account while still working. This may be difficult to determine without asking your plan administrator. The plan document will have a phone number you can call.
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Visit a site such as incorporate.com to form your corporation online. You will need personal records, however, the process can be done very quickly.
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