By Amy O. Williams
When it comes to baby boomers starting businesses, some members of that generation have considered using their retirement assets to fund new ventures rather than taking out loans.
Since the Pension Protection Act of 2005, it has become easier to use the money in a retirement account or a 401(k) to fund a new business or buy real estate.
Financial advisers and estate planners agreed that, as with any financial decision, choosing to withdraw money from a retirement account depends on the individual -- but it can be risky. Here's some advice from our experts ...
- Richard Cox, 54, Chief Investment Manager, Cox Wealth Management, LLC -- "There is no absolute right or absolute wrong; it is not a black and white thing ... There are many individuals out there for example, in the baby boomer generation, [who] borrow money against assets or retirement plan assets to start a franchise. And that franchise very well may wind up being worth substantially more over time. So the answer is, it depends. It really depends on what business model you are looking at."
- Robyn Thomas-McWherter, 45, Senior Vice President and Manager of Private Client Services, FSGBank -- "I think it is extremely risky. What you potentially give up are the effects of compounding interest. It becomes almost impossible to make that back up. I have gone through the risks and rewards with several of my clients, and none of them has done it."
- Martin Pierce, 51, Attorney Specializing in Estate Planning -- "Generally speaking, you would not want to access retirement plan money because if you are less than age 59.5, you've got penalties, and, in any event, you've got the income tax you've got to pay. Plus, it's your full retirement, and that is the whole point of setting it up -- to try and save money for retirement. A loan would be better and would be cheaper, frankly."
E-mail Amy O. Williams at awilliams@timesfreepress.com.
Source: Chattanooga Times/Free Press, Tenn. Distributed by McClatchy-Tribune Information Services. Powered by Yellowbrix.
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