Author Topic: How stupid is drawing on a 401k account to get started?  (Read 2463 times)

monothemonkey

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How stupid is drawing on a 401k account to get started?
« on: March 23, 2018, 05:53:34 PM »
I'm in a unique position where I've just finished a 20 month sabbatical traveling the world.  I am in the middle of the hiring process to go back to work for the government, in a field with lots of demand.  I made a lot of money at this job, so I'm thinking about taking a big risk and withdrawing 15-25% of my TSP which is similar to a 401k account.  I'm 29 years old and have massive ambitions to create this business.  I've never even considered touching the TSP funds in the past... because common 'finance rules' say not to; but I'm considering it now because I have a high risk tolerance and a great chance of getting my previous job back.

I understand I will pay income tax, plus 10% on these funds as an early withdrawal penalty.  I don't have any debt, have a few other investments going that I don't want to touch (cryptocurrency and FB stock).  Another option would be to go into debt, but I just don't see how this is more advantageous than taking the money out of my TSP account.

Lastly, I always try to protect the downside and think of the worst possible outcome.  There is a chance that I might not get my previous job back, there is also a chance that my business model could fail.  I think it is highly unlikely that both of these things will happen.  If they do, I'll be in the same situation as I am right now, but I'm pretty confident that if that happens, I'll be able to find employment elsewhere.

bridget

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Re: How stupid is drawing on a 401k account to get started?
« Reply #1 on: March 23, 2018, 06:09:57 PM »
I'm not a small business person, but why would you front your own money rather than get a small business loan?  Your company/business would take on the debt and limit your liability.  If the company has no assets the bank would probably make you be a guarantor, but at least in that situation you would maybe be using your own money in the event of default, instead of certainly using your own money now (plus taxes and a hefty penalty). 

How much is 15-20% in dollar amounts?  That's probably pretty relevant. 

monothemonkey

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Re: How stupid is drawing on a 401k account to get started?
« Reply #2 on: March 23, 2018, 06:27:18 PM »
$5-10k.  I have awesome credit, but am not receiving a paycheck right now.  I'm thinking this would put me at a high intereste rate?

Telecaster

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Re: How stupid is drawing on a 401k account to get started?
« Reply #3 on: March 23, 2018, 07:12:29 PM »
I understand I will pay income tax, plus 10% on these funds as an early withdrawal penalty.  I don't have any debt, have a few other investments going that I don't want to touch (cryptocurrency and FB stock).  Another option would be to go into debt, but I just don't see how this is more advantageous than taking the money out of my TSP account.


You'd rather take a guaranteed loss rather than give up your speculation in cryptocurrency?  A lot to unpack there. 

From an investing standpoint the question should always be "what is the best use of funds?"  You are assuming that taking a guaranteed loss on your TSP funds and investing in your business is the best use of that money.  Fair enough.  And at the same time, you are assuming FB and your cryptos will out perform your own business.  If you didn't assume that, then obviously you would sell them and invest in yourself, right? 

Therefore, since you believe FB and cryptos will outperform your own business, you should not bother with your own business and simply sell your TSP and invest in FB and cryptos. 




SwordGuy

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Re: How stupid is drawing on a 401k account to get started?
« Reply #4 on: March 23, 2018, 08:12:14 PM »
Why would you want to spend your savings or go into debt to start your business?  Why pay for stuff to get started if you can get it for free or barter for it?

Why not sell your product to someone, then provide the product?    That way, if no one will buy it, you're not in debt and can easily try something else.

Check out these guys, they have some damn good ideas on how to go about it:

https://www.popupbusinessschool.co.uk/



bridget

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Re: How stupid is drawing on a 401k account to get started?
« Reply #5 on: March 23, 2018, 11:52:57 PM »
You only need $10k to start a business? Good god man, get a loan. Hell, there are credit cards that will sell you $10k for less than a 10% penalty plus taxes.

Better yet, since you say you’re just making such good money now - just save for a few months and cash flow it. If you need to tap into your retirement account to access $5-10k, you are not financially sound enough to start something as risky as a company with your own money.

SC93

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Re: How stupid is drawing on a 401k account to get started?
« Reply #6 on: March 24, 2018, 09:58:03 AM »
This post has so many red flags it's inSANE!!!!

Any business person that reads this will shake their head and agree this is not a good thing at all. Just by asking this question, I don't think it's a good idea for you to spend $10k on any business even if you had $10k to play around with.

If you are serious about wasting $10k on your first business before you learn how to run a business here is what you do. Save up $10k.... will it take you 2 months or 2 years? That will determine how bad you want it! But by you having to work and save, it will make you wiser with the business IF you still want to start the business once you save up enough money.

My most successful business so far was started with $3.17. We started what we named The .com with just a few hundred dollars. The small business I have now that is making $100,000 a year was started with $150. So tell me why $10k is going to make you so much money? I bet you can start this business for 1/2-3/4 of that if you really wanted to. Depending what the business is, maybe a few hundred..... IF you really wanted to.

What is the business?

monothemonkey

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Re: How stupid is drawing on a 401k account to get started?
« Reply #7 on: March 24, 2018, 03:14:25 PM »
This post has so many red flags it's inSANE!!!!

Any business person that reads this will shake their head and agree this is not a good thing at all. Just by asking this question, I don't think it's a good idea for you to spend $10k on any business even if you had $10k to play around with.

If you are serious about wasting $10k on your first business before you learn how to run a business here is what you do. Save up $10k.... will it take you 2 months or 2 years? That will determine how bad you want it! But by you having to work and save, it will make you wiser with the business IF you still want to start the business once you save up enough money.

My most successful business so far was started with $3.17. We started what we named The .com with just a few hundred dollars. The small business I have now that is making $100,000 a year was started with $150. So tell me why $10k is going to make you so much money? I bet you can start this business for 1/2-3/4 of that if you really wanted to. Depending what the business is, maybe a few hundred..... IF you really wanted to.

What is the business?

I am renting space to grow microgreens commercially.  I also need to purchase more shelves, trays, soil, seeds, etc because I'm only doing it as a hobby right now and my scale is small.  I can potentially do this with the cash I have on hand, but that puts me in a very stressful situation.  One minor setback and I'm out of money.  I've already proven the concept, found people who like my product, and now just need to produce more volume so that I can recruit more sales.

You only need $10k to start a business? Good god man, get a loan. Hell, there are credit cards that will sell you $10k for less than a 10% penalty plus taxes.


I suppose a balance transfer with 15months interest free type of situation would set me up perfectly.  I hadn't even thought of this yet.

I understand I will pay income tax, plus 10% on these funds as an early withdrawal penalty.  I don't have any debt, have a few other investments going that I don't want to touch (cryptocurrency and FB stock).  Another option would be to go into debt, but I just don't see how this is more advantageous than taking the money out of my TSP account.


You'd rather take a guaranteed loss rather than give up your speculation in cryptocurrency?  A lot to unpack there. 

From an investing standpoint the question should always be "what is the best use of funds?"  You are assuming that taking a guaranteed loss on your TSP funds and investing in your business is the best use of that money.  Fair enough.  And at the same time, you are assuming FB and your cryptos will out perform your own business.  If you didn't assume that, then obviously you would sell them and invest in yourself, right? 

Therefore, since you believe FB and cryptos will outperform your own business, you should not bother with your own business and simply sell your TSP and invest in FB and cryptos. 





What ever happened to diversification?  I've read the white paper and had the code audited for every project that I am participating in.  I don't want to start an argument here, but do you know much about blockchain?

Telecaster

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Re: How stupid is drawing on a 401k account to get started?
« Reply #8 on: March 24, 2018, 08:14:04 PM »

What ever happened to diversification?  I've read the white paper and had the code audited for every project that I am participating in.  I don't want to start an argument here, but do you know much about blockchain?

I know quite a bit about blockchain.  I also know a bit about money in general.

One observation I've made is that people who are proponents of investing in cryptocurrency seem to forget about the word "currency" in cryptocurrency.  The proponents are hoping that the crypto gains adoption it will appreciate vs. the USD.  Hence it is a good idea to buy crypto for small dollars now, and sell it for big dollars later.  Buy low, sell high.  Simple enough.   However, if a particular crypto is appreciating vs. the USD, that means the crypto is deflating.   Deflation makes crypto less useful as an actual currency for a whole host of reasons.   If a given currency isn't as useful as say, a dollar, then it is less likely to ever be adopted.  You can see the vicious cycle there.  If it works as an investment, it can't work as a currency, which means it can't work as an investment. 

There have been a number of attempts to create a stablecoin, which makes the crypto vastly more attractive as an actual currency, but the ones I've looked at seem to be scams/implausible like Tether,  or just flat dumb like MakerDAO.  But if it is stable, then there is no reason to expect price appreciation.   

Another problem is that it is a misnomer to say you "invest" in currencies (any currency, not just crypto).  You can trade, speculate, or hedge in currencies, but it isn't really sensical to say you invest.  There's nothing particularly wrong with currency exchange.  Real traders trade currencies for a living every day.    If you have the skill set to make money trading cryptos, then more power to you.   But that's a different activity than investing and you only need enough crypto to participate in the markets. 


Cpa Cat

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Re: How stupid is drawing on a 401k account to get started?
« Reply #9 on: March 24, 2018, 08:30:45 PM »
It's pretty stupid.

Also, I'm concerned that you even have to consider it for only $5k-$10k. It means you have no real liquid savings.

I don't think you should invest in your business if you can't come up with $5k cash without raiding your retirement funds or investments you don't want to sell.

SwordGuy

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Re: How stupid is drawing on a 401k account to get started?
« Reply #10 on: March 25, 2018, 01:26:37 PM »
So, you're doing this on a small scale and a set-back (a) stresses you out and (b) makes you lose all the profits.

So, what happens when you spend $10,000 and have the same type of set-back?  Will having invested/borrowed $10,000 to (b) lose all your profits (a) stress you out even more?

Why spend $10,000 to increase production?   Why not $500, increase sales to match, refine your processes so setbacks are less troublesome?   Lather, rinse, repeat but use the profits to fund the expansion?

Because the possibility is that you'll spend $10,000 and discover there's only $1,500 worth of business out there.

How big is your market?  Can you saturate it?

monothemonkey

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Re: How stupid is drawing on a 401k account to get started?
« Reply #11 on: March 28, 2018, 03:47:23 PM »
Thanks so much for the responses.  I certainly learned a lot here.  I already knew that raiding my TSP is not a smart idea.  The posts here confirm that.

As for can I saturate the market?  I don't think so.  I think the market will be rapidly growing in the coming years.  But time will tell. 


What ever happened to diversification?  I've read the white paper and had the code audited for every project that I am participating in.  I don't want to start an argument here, but do you know much about blockchain?

I know quite a bit about blockchain.  I also know a bit about money in general.

One observation I've made is that people who are proponents of investing in cryptocurrency seem to forget about the word "currency" in cryptocurrency.  The proponents are hoping that the crypto gains adoption it will appreciate vs. the USD.  Hence it is a good idea to buy crypto for small dollars now, and sell it for big dollars later.  Buy low, sell high.  Simple enough.   However, if a particular crypto is appreciating vs. the USD, that means the crypto is deflating.   Deflation makes crypto less useful as an actual currency for a whole host of reasons.   If a given currency isn't as useful as say, a dollar, then it is less likely to ever be adopted.  You can see the vicious cycle there.  If it works as an investment, it can't work as a currency, which means it can't work as an investment. 



This is so interesting to me.  Thanks for posting.  My argument is not so much for the gains in crypto, but to protect the downside against devaluing fiat currencies.  If you pull up a chart of USD/BTC instead of BTC/USD, you see that USD (and all government backed currencies) are rapidly losing value.  I'd also argue that BTC is more of a safe haven (which I realize means I should not horde it like an investment, or even all it an investment).  Lastly, I believe that BTC is part of the blockchain movement to decentralize everything, and to separate money from the state.  Telecaster, I'd really like to hear your views on my points above.

And moral of the story: it's stupid to draw on the 401k.  Thanks to all of you for bringing me back to reality.

CNM

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Re: How stupid is drawing on a 401k account to get started?
« Reply #12 on: March 28, 2018, 04:13:59 PM »
If you're eager to get started right this very minute, float these expenses on your credit card.

If you can wait a month or so, I'd recommend doing the right thing and get your business documents in order.  This gets you a EIN and you can apply for credit cards and SBA loans and regular commercial loans in your business's name.  This makes bookkeeping 1000 times easier.  It also will help insulate you from liability AND, depending on your location, it will set you up for paying your sales taxes correctly from the get-go.  I see a lot of small businesses get screwed/shut down because they didn't realize they needed to pay sales tax (or where I live it's gross receipts tax, which applies to goods AND services), and never bothered to set things up the right way.

bwall

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Re: How stupid is drawing on a 401k account to get started?
« Reply #13 on: March 29, 2018, 09:35:48 AM »
Don't want to beat a dead horse, but there is no way in **** that I'd go into debt in a real, actual currency while holding a speculative play, such as crypto. Reasonable people can debate the merits of one action or the other, but not both simultaneously.

Dicey

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Re: How stupid is drawing on a 401k account to get started?
« Reply #14 on: March 29, 2018, 09:41:18 AM »
Fuck no.

Smokystache

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Re: How stupid is drawing on a 401k account to get started?
« Reply #15 on: March 29, 2018, 10:19:53 AM »

I am renting space to grow microgreens commercially.  I also need to purchase more shelves, trays, soil, seeds, etc because I'm only doing it as a hobby right now and my scale is small.  I can potentially do this with the cash I have on hand, but that puts me in a very stressful situation.  One minor setback and I'm out of money.  I've already proven the concept, found people who like my product, and now just need to produce more volume so that I can recruit more sales.


Sounds like you've heard the consensus on using 401k funds. I'm really glad to see that you've already started the business on a small scale - that is so much better than borrowing $10k based on a vague idea/hypothetical business.

I think the bigger questions than where to get $10k are:
a) do you enjoy (or at least not hate) the work to grow the microgreens?
b) are you selling your current supply? or if only providing for yourself or not selling it for some reason, could you easily sell the volume that you hope to produce?
c) What are some creative ways to start as cheaply as possible and expand as you see a consistent demand and customers who are willing to regularly pay prices that give you a good profit.

I suspect you have partial or complete answers to a-c -- best of luck!!

SC93

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Re: How stupid is drawing on a 401k account to get started?
« Reply #16 on: March 29, 2018, 01:05:44 PM »
I still agree with what I said above about working for the $10k..... but you don't need $10k or near it. You can buy used shelves CHEAP at an auction or just cheap shelves to get you started. I'm sure there are shelves that will work for you on Craigslist that you could buy way cheaper than you have probably looked at. If someone wants $1000 for some shelves shoot them a very nice email and explain that you only have $200 but you could pick them up today and have cash. If they say no just tell them thank you and if they change their mind to please let you know. Then in 8-10 days email them back and say you've come up with another $50-$75 if they still have the shelves. Then if they come down to $400 make the buy. If you continue to be nice they will eventually sell to someone else or cave in and sell them to you for less than 1/2 of what they wanted originally. Don't just do this with 1 ad..... make several inquires.

And like someone else said..... move up with $500. Then invest the profit from that and grow more. And continue to do this until you are at the point where you want to be.

By the way.... if it stresses you out over using your last bit of saved money to do this business..... you will probably be sorry within 2 years that you started this business at all. What that shows me is that you don't trust that it will be a money maker. Go back to your calculator and see what it tells you. Always listen to your calculator.... it has no feelings one way or the other.

Telecaster

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Re: How stupid is drawing on a 401k account to get started?
« Reply #17 on: March 29, 2018, 04:50:13 PM »
This is so interesting to me.  Thanks for posting.  My argument is not so much for the gains in crypto, but to protect the downside against devaluing fiat currencies.  If you pull up a chart of USD/BTC instead of BTC/USD, you see that USD (and all government backed currencies) are rapidly losing value.  I'd also argue that BTC is more of a safe haven (which I realize means I should not horde it like an investment, or even all it an investment).  Lastly, I believe that BTC is part of the blockchain movement to decentralize everything, and to separate money from the state.  Telecaster, I'd really like to hear your views on my points above.

It is easy to philosophize about money, because it exists in our minds and no where else.  We all somehow agree a dollar is worth something, and therefore it is worth something.  And there has been a lot nuttier stuff than dollars or bitcoins used for money over the years.   Rai stones for example:

https://en.wikipedia.org/wiki/Rai_stones

Including a rai stone that is on the bottom of the ocean but still still continued to trade like a normal rai stone.   Or, for example,  in the 1600s in Britain, tradespeople would issue their own currencies.  An innkeeper might issue leather tokens good for beer in exchange for some potatoes (or whatever).  The farmer would then use the tokens to buy a barrel from the cooper, and the tokens would continue circulate just like regular money.  It was all fiat money created by the innkeeper. 

So I don't see any philosophical reason why Bitcoin or any other cryptocurrency couldn't be widely adopted, it is all made up anyway, right?    But there are some practical reasons why that's unlikely to happen.  One is that part of the usual definition of money is that it is a store of value.  The blacksmith can figure out how many beers a horseshoe is worth, and it will probably be worth the same number of beers next year too, so he's willing to take a certain number of leather beer tokens from the cooper to shoe a horse. 

How much is a bitcoin worth?  I have no idea, and neither does anyone else.  How much is a dollar worth?  I have a pretty good idea of the value.  It isn't backed by beer, but everyone else has the same idea of the value, so I'm confident a dollar this year, will have pretty much the same value next year.  Bitcoin, not so much.

Next, central banks have a vested interest in keeping their currencies stable.  Sometimes, they don't, like in Zimbabwe or Venezuela.  But there is nothing to keep the price of Bitcoin stable.  And if a currency isn't stable, you can't enter into contracts with it.  For example, contracts like car loans or home mortgages, or building nuclear power plants.  You can't price future costs in bitcoin.  Because the entire world economy is based on credit, and always has been (see the example of the lnn keeper's leather token), and you don't know what a bitcoin is worth in the future, you can't have credit priced in bitcoin.  You can pay in bitcoin, but the price has to be in dollars or some other currency that is stable.

Next, the US government, and almost every government, requires taxes and wages be paid in legal currency.  Because taxes and wages are the biggest, or at least among the biggest, expenses of almost every business, businesses need dollars, not bitcoin.  For that reason alone, I just don't ever seen widespread adoption of any crypto. 

Johnez

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Re: How stupid is drawing on a 401k account to get started?
« Reply #18 on: April 04, 2018, 05:13:16 PM »
Wants to start business. Willing to destroy retirement plan, in order to keep crypto currency and FB stock.

I call troll. Nobody who's read anything on this site can even think of doing something this ridiculous.

shinn497

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Re: How stupid is drawing on a 401k account to get started?
« Reply #19 on: May 10, 2018, 10:14:16 PM »
Don't get a loan to start a business. Bad idea. Save the money or figure out a way of starting the business on the cheap. If not then look into another business.

Part of starting a business is solving problems. If you can't get over this one right now than you should not be starting a business.

2Birds1Stone

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Re: How stupid is drawing on a 401k account to get started?
« Reply #20 on: May 11, 2018, 04:47:21 AM »
I can potentially do this with the cash I have on hand, but that puts me in a very stressful situation.  One minor setback and I'm out of money.  I've already proven the concept, found people who like my product, and now just need to produce more volume so that I can recruit more sales.

Are you a troll?