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Cashing out IRA to start a business?

2,665 Views | 26 Replies | Last: 6 yr ago by deadhead aggie
deadhead aggie
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AG
So, I was laid-off in September 2016 and have not been successful in landing another job since that time. I could start an entirely new thread on the trials & tribulations of this fiasco, but I'll save both you and I the time.

I took a portion of my severance earlier this year and opened a business for my wife (gonna pass on rule #1) for her to operate and manage. It's circling the drain right now, but that's expected seeing how it just opened its doors. I expect it to be self-sustaining in the 2019 or 2020 timeframe.

Once the business kicked-off, my goal has always been to go back to work so that we have the security of a "real job" with benefits. At the rate that I'm going on my job search, I've come to the realization that I may never land a role. I'm almost 50, so my age may or may not have something to do with my success (or lack thereof) in landing a job.

Any thoughts on me cashing-out my IRA to dedicate my time 100% to the business? Has anybody on this board ever done this before? Any insight or lessons learned? I don't like the idea of not having a nest egg set aside for down the road, but desperate times seem to now call for desperate measures.

Many thanks.

Sooner Born
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No way in hell I would touch my nest egg at 50 for an investment in a business that is circling the drain (even if it is young). There's not enough time to recover if it doesn't go as planned unless you plan to work until you're 85.

I would explore alternate financing routes instead.
The Wonderer
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AG
No. Just no.
deadhead aggie
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Sooner Born said:

No way in hell I would touch my nest egg at 50 for an investment in a business that is circling the drain (even if it is young). There's not enough time to recover if it doesn't go as planned unless you plan to work until you're 85.

I would explore alternate financing routes instead.
Trust me, the decision keeps me up at night.

Any idea as to how to secure alternate financing when the business has a red balance sheet and I have zero income coming in to support a loan?

Edit: Thanks by the way.
Ragoo
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AG
deadhead aggie said:

Sooner Born said:

No way in hell I would touch my nest egg at 50 for an investment in a business that is circling the drain (even if it is young). There's not enough time to recover if it doesn't go as planned unless you plan to work until you're 85.

I would explore alternate financing routes instead.
Trust me, the decision keeps me up at night.

Any idea as to how to secure alternate financing when the business has a red balance sheet and I have zero income coming in to support a loan?

Edit: Thanks by the way.
angel investors
Ulrich
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Have you put together a thorough, professional business plan to help tell the story to investors?

I wouldn't cash out any of my retirement accounts to fund a business and I'm substantially younger. There are less personally risky ways to get capital.
deadhead aggie
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Ulrich said:

Have you put together a thorough, professional business plan to help tell the story to investors?

I wouldn't cash out any of my retirement accounts to fund a business and I'm substantially younger. There are less personally risky ways to get capital.
Thanks for chiming-in.....

No, I haven't done this as of yet because approaching investors hasn't been on the table. My initial assumption (which is now proving to be a poor assumption) was that I would be able to land a job in a reasonable timeframe. Going forward, I plan to continue to pound the pavement, but I want to have a Plan B in the works should things not pan out on the job hunt.

This is unchartered territory for me and I appreciate the insight. Looks like I better start performing some due diligence on the investor option. Thanks.
Long Live Sully
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My two cents would be

1. No way
2. Write the business plan and honestly answer if the business will produce real income
3. Stay with the job hunt and get one if for no other reason than to be diversified
Greeze06
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AG
What type of business?
MPython43
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What kind of business? What kind of help or support have you sought with the current business?

If youre not working currently, aren't you working full time at it now? Have you worked out the exact model that gets you to profitability and positive cash flow so you know what your target is ?
AFarmer95
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Can you get a line of credit on your house?
To me it would be acceptable to tap into your ira for real estate purchase or other appreciating type assets but not use it for operating capital.
Ulrich
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I think a lot of the value of the business plan is helping clarify when and whether this venture will make money not just for investors but for yourself. It's a lot tougher to write a convincing story than it is to think or verbally tell a convincing story. You presumably know a lot more know than when the two of you started, too.
cheeky
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Ragoo said:

deadhead aggie said:

Sooner Born said:

No way in hell I would touch my nest egg at 50 for an investment in a business that is circling the drain (even if it is young). There's not enough time to recover if it doesn't go as planned unless you plan to work until you're 85.

I would explore alternate financing routes instead.
Trust me, the decision keeps me up at night.

Any idea as to how to secure alternate financing when the business has a red balance sheet and I have zero income coming in to support a loan?

Edit: Thanks by the way.
angel investors
Ha! Not the people I know. Would be way too small for most angels based on reasonable assumptions.

One thought: use IRA to purchase real estate/building as investment in business? Retains tax status if done correctly so all of the money goes to work vs pre-mature taxable distribution.

Sounds like a tough spot. Good luck
deadhead aggie
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Thanks to everyone for the input.

It's a healthcare-related business.

As far as anticipated monthly revenue goes, this one's a bit of a wild card. I can honestly say that we didn't do much "scientific" homework behind this one. We have an idea as to what we need the business to earn versus what we want the business to earn. We're not talking huge numbers here and I believe they are realistic based on what little up-front homework we performed. We were formally trained out-of-state by an owner of a similar company performing similar services. We have an idea as to what that company nets on a monthly basis, so we keep number that as our target/benchmark. Apples and oranges, yes, but it's a okay go-by.

My wife dedicates all of her time to the business. I concentrate on applying for jobs, interviewing, and networking, and spend the balance of my time at the business. It's slow for now and for the short term, I think we can get away with one full-timer (wife) and one part timer (tbd).


Here's an extremely newbie question that maybe someone can answer.......
Let's say I get an investor that agrees to dump $150,000 (pulls number out of thin air) into the company. Will the obligation be to apply the funds directly into the business going forward only, or can I use some of the funds to immediately recoup my initial investment? The reason I ask is that, if I don't get a job, I need some immediate discretionary funds.


Thanks to all. If you're scratching your heads wondering why/how someone could get themselves into such an awkward and unpredictable situation, I'm right there with you. If I've learned one thing from all of this is that you can't always plan on life to work-out according to the way you plan. Life will throw a curveball or two at you and you need to learn to adapt.
The Wonderer
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Curious as to what type of healthcare business you're talking about as im in that field.


The application of investment funds is dictated by the company agreement and what your PPM says they'll be used for. Typically those funds are the operation of the business. If you salary is included in generation of the business, then you'd pay yourself. A lot of investors I know aren't found of that.
Cancelled
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I did it for my law office. But I was 34.
Agof88
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First off, sorry for your job situation. The older I get the more this hits close to him.

Can you post more about your experience and the types of jobs you are looking for? The Aggie network has done some amazing things. A full time job with benefits while you (nights and weekends) help your wife make a go at the business seems like the best plan. Also should take a hard look at if the business will realistically be a profitable endeavor. If not, cut your losses and have her get a stable position as well. Sincere good luck to you and your wife.
TennAg
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Have you considered local government work? You may not be paid a ton but you won't find better benefits and they would be the last to discriminate on age.

And i agree that retirement is off limits for starting a business at this time. That's throwing good money after bad.
BigPuma
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Huge difference between 34 and 50.
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gigemhilo
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Dont do it. Never use IRA money for current items, and ESPECIALLY not to invest in self employment.

Go to the bank - beg your friends - whatever, but dont put your future retirement income at risk. You simply cannot get it back once its gone.
deadhead aggie
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Thanks to everyone for the advice.

I've ditched the idea of using my IRA. I was never comfortable with the concept to begin with and your feedback only drives it home. I'm looking at a Personal Line of Credit at 8% interest with a bank that doesn't place a lot of emphasis on debt to income ratio (lucky for me), but instead looks as historical credit.

As far as what I do, I have a Supply Chain Management background and have spent the past 16 years with one of the 3 Big Oil companies before being laid-off in 2016 due to the market downturn. I've posted on the Job Network board on TexAgs, but haven't been able to generate many leads. Unfortunately, up to this point, I've exhausted my entire network of contacts. I literally have no solid leads to work with. Come 2018, I'll just be blindly posting into the black-holes that are Indeed, Rigzone, Monster, LinkedIn, etc...

Thanks to all.

Long Live Sully
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Try Indeed.com as well.

Good Luck
MPython43
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https://www.ablelending.com

Had a buddy who used to run their marketing and another who has used them as a lender. Heard good things.
chazman05
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AG
Had a buddy do this recently, but he actually quit his job which he was doing very well. He was making over 200k with bonuses.. He used his 401 to purchase a business that he researched very well and already proven itself. There are still a lot of pit falls but purchasing a business vs starting a business are 2 different things.



Best of luck!
aggiedata
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Brainstorming here:

Patient Advocate

Support patients as they navigate the health care system. Growth projection for health care social workers, which includes some advocates: 26.8 percent.

Use your healthcare experience to help seniors as an independent consultant, or help them get on Medicare, fill out the forms... for a fee.

LOYAL AG
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Email me. I may have a contact for you. Not sure if it'll be a fit but right now every conversation you have is a good one.



deadhead aggie
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^
Sent.
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