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Starting a Business with Your 401(k)? Be Careful

From the second half of 2020 through May 2021, the Census Bureau tracked the highest number of applications to form businesses since the records started being kept in 2004, a recent report from the National Bureau of Economic Research found.  According to 2019 data from the Kauffman Foundation, nearly 65% of entrepreneurs use personal and family savings to fund their start-ups. The Global Institute for Experienced Entrepreneurship advises that instead of tapping retirement funds, the institute advises crowdfunding to get a business off the ground. “If you put your idea out there on Kickstarter and no one is willing to invest even a dollar, you know before you put in a huge amount of time that it might not work,” said Elizabeth Isele, the institute’s CEO.

Other tips to consider before dipping into retirement funds: 1.) Plan ahead financially-make sure you have 6 months of mortgage money reserved. 2.) Start Small. 3.) Find a niche market 4.) Consider the worst-case scenarios. 5) after withdrawing from your 401(k) early, you will owe penalties and taxes.

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