How to Invest in a Personal Business From a 401k

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To invest in a personal business with a 401K loan, talk with the plan administrator or the HR department, find out the provisions of a 401K loan, determine the interest rate on the loan, and research the business opportunity. Repay a 401K loan as quickly as possible, and understand the risks of such a loan with information from a financial consultant in this free video on business financing.

Part of the Video Series: Business Financing
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Video Transcript

Hi, my name is Bill Rae. I'm with Alumni Financial Services. Today, we're going to talk about how to invest in your personal business from a 401k. Let me start off by telling you: Any time you go to touch your 401k, you should think long and hard. But let's assume that you have an active 401k. The first thing you want to do is talk with the plan administrator or your HR department. Find out does your 401k have a loan provision in it? If it does, then you need to determine what is the interest rate that you're going to be charged to borrow money from your 401k. Once you determine that, you ought to look around. See if there's any other source of outside money from a commercial lender or a private lender. See what the difference is. If the interest is low enough and it makes sense, then apply for the 401k loan. But by all means, make sure that when you borrow money to do a business, that you've done your research on that business. Make sure that you understand what the competition is, and without a doubt, you want to repay your 401k just as fast as you can. As in all things in business and finance, I always recommend do understand whatever contracts you're signing, always seek outside counsel. Talk to advisers, such as ourselves. But without a doubt, make sure that you understand the cost involved, if there's any penalties at all, and what are my risks. If all those things fit your comfort level and you decide to move ahead, then do it and do it cheerfully. And by all means, give it everything you've got. My name is Bill Rae, I'm with Alumni Financial, and we're helping you build wealth.

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