Ask HN: When does it make sense to use a 401K to fund a startup?

1 point·nylonstrung··4 comments

It's just been brought to my attention that one can use a structure known as ROBS (Rollover for Business Startup) to invest IRA or 401K money into their own business.

Has anyone had experience taking this approach? If I'm planning on launching a bootstrapped startup in a year does it make sense to max out my 401K now and invest it via ROBS to bypass income tax?

View on HN

If you lost all your 401K money, you not only lost the money, but you also lost the TIME that it took for that money to accumulate and grow. In addition, I would think there would be tax implications for losing that money. I don't know enough, but this sounds like a very risky and bad idea compared to getting a bank loan. In addition, your 401K is safe during bankruptcy -- in case your bank loan goes bad. The approach of using retirement money for a venture is gambling with your safety net.

It doesn't. Its far too big of a gamble to risk throwing away your retirement. If you can't finance your start-up with cash on hand then you need to come up with a way to get cash that doesn't involve 401k's/IRAs

I'm unfamiliar with ROBS, but in the general case, you not only face penalties for early withdrawal, but it counts as added regular income for tax purposes.

Well the point of ROBS is that neither of those apply as far as I can tell. I certainly would not take money out were that not the case.

Reply on news.ycombinator.com