Some people decide to use their retirement savings to start their own business once they have retired. When retired people find themselves with a lot of time on their hands and a sizeable retirement account balance, it is no surprise that they would want to start their own business that they can run like they want and be their own boss. While there is no prohibition on using the funds in your retirement account to start a business, you must be careful to ensure that you do not lose your money and your business. Here are some things that you should keep in mind when considering using your retirement savings to start your own business.
The Process Is Complicated
The process of using your retirement savings to start your own business seems like it should be simple, but it is actually pretty complicated. One method used is converting traditional 401k accounts into new retirement plans, known as “rollovers as business start-ups” or ROBS. These new retirement plans can be used to invest in the retiree’s company without the retiree acquiring any debt. Because the process is considerably complicated, you will want to seek the assistance of a financial planner that specializes in helping people use 401k assets to invest in businesses or other nontraditional assets, like property.
Actions Must Satisfy Requirements of Federal Agencies
It is important to go through the process of using retirement funds to finance a business carefully to ensure that you do not break any of the rules or regulations issued by the Internal Revenue Service or the Department of Labor, which has jurisdiction over 401(k) plans. Making mistakes in the process could result in the loss of the person’s retirement savings, the business and a source of income. While some financial advisers see the plans as treading the line of legality, the I.R.S. will not bring charges against anyone that has followed the rules that have been put into place perfectly. Failure to do everything right could result in financial penalties, having the entire retirement plan disallowed and/or having to pay a large tax bill.
How Do ROBS Work?
Because ROBS have been steadily increasing in popularity over the past few years, many people are wondering how they work. People take their 401k account, or other qualified retirement plan, and roll it over into a new plan that purchases shares in an operating company that will own their business. A business that has been financed through ROBS has to be registered as a C-corporation, which can issue shares and does not prohibit ownership by trusts. The person does not own the company, the plan does. The person must also act in the best interest of the plan when making decisions for the company, so the person must do their research before making any major decisions.
When people are lucky enough to come into a large monetary windfall, they often have no idea what they should do with it. Some people go nuts and spend it all within a short period of time while others hold onto it tight-fistedly as if they are afraid that it will disappear as soon as they blink. The trick is to find a happy medium between those two extremes so that you can have some fun today while still saving money for your future. Here are some tips on how to correctly handle a large monetary windfall and avoid wasting the money on unnecessary purchases.
Put Most Aside For Saving
When receiving any large amount of money, it is important to put a portion of it away to be saved for the future. If it is placed into savings right away, you will not miss it because you didn’t really have it to spend. Exhibit discipline and do not touch the money that you have placed into your savings account unless it is a reason already predetermined by your spending plan. Putting most of the money from a windfall payment into savings allows you to boost the balance of your savings account significantly without having to expend much effort.
Pay Off Debt
If you are carrying any debt, you should use a portion of your monetary windfall to pay it off. Debt can be very expensive to hold on to, especially credit card debt and any other debt with a high interest rate. Hopefully, your debt levels are not so large that paying them off would require the entire amount of your windfall payment. If so, put about half of the amount towards establishing an emergency fund and dedicate most of the rest to paying down your debt.
Have Some Fun
It is also important for you to take a small portion of the money that you receive and spend it on having some fun for yourself. For example, you may choose to click on a promo that says, “possibly the best live casino offer we’ve ever seen…” and invest a few dollars in the games. Or there may be an inexpensive concert coming to town that you would like to attend. It is important to do something good for yourself every once in a while to reward yourself for a job well done and curb the temptation of dipping into your savings account for unnecessary purchases.
This is a guest post.
The world of insurance is a complicated realm and one where it’s not always clear which of the available options would be in your best interest. In this respect, auto insurance is no different than any other type. There are various types of coverage available and, to make matters worse, each state has its own requirements that residents must adhere to. Therefore, it’s important to arm yourself with an understanding of the coverage options available and your local requirements.
Basic Liability Coverage
Liability coverage is limited to paying for damage you do to other people and their property in an accident. Liability coverage typically involves three separate components:
- Bodily injury coverage per person (the maximum amount paid to each individual for injuries sustained)
- Bodily injury coverage per accident (the maximum amount paid for injuries sustained in a single accident, regardless of the number of people involved)
- Property damage (the maximum amount paid to replace or repair property that is damaged in an accident)
Bodily injury liability coverage protects you if you’re responsible for an accident that hurts another person. It covers their injuries and lost wages. But remember, bodily injury coverage doesn’t apply to your injuries. Property damage coverage covers damage you cause to somebody else’s property. Again, this doesn’t apply to damage caused to your own property, only others.
Just about every locale requires some type of liability coverage. Check your local Department of Motor Vehicles for specifics on what liability insurance you are required to have, including minimum coverage amounts.
Comprehensive and Collision Coverage
While liability insurance is designed to cover losses experience by others when you are involved in an accident, comprehensive and collision coverage is designed to protect your losses.
- Comprehensive coverage pays for damages to your vehicle resulting from something other than a collision. Things like fire, theft, vandalism or damage caused by hitting animals may all be covered.
- Collision coverage pays for damage to your vehicle that is caused by your vehicle rolling over or through a collision with another vehicle or objects like buildings, fences or telephone poles.
This is not usually a requirement but if you are ever in an accident and don’t have comprehensive and collision coverage you may be responsible for paying the costs of repairing or replacing your vehicle out of your own pocket.
Uninsured/Underinsured Motorist Coverage
Uninsured and underinsured motorist coverage is where things can get a little more tricky. Sometimes these two are lumped together into a single policy and at other times they are considered two separate situations. Additionally some areas will require some type of coverage that falls into this category while it may not even be available in others.
Uninsured and underinsured motorist policies are designed to protect you in the event that you are involved in an accident with someone who does not have any insurance at all or someone who does not have enough coverage to meet the requirements. These will typically contain the same components as liability: bodily injury and property damage. Again, you should check with your local DMV to find out if this coverage is required in your area or not.
Now that you have a good understanding of what coverage is available and what is required in your area you can now start comparing insurance quotes by contacting various insurance companies.
While at the dealership, the low initial costs of leasing a car may entice you into signing up for the dealership’s leasing program. When buyers do this, they are mainly focused on the immediate gratification of getting the car that they want for a cost that they can afford. This fails to take into account the long-term cost of leasing a car. Once all of these costs are calculated, leasing a car can be significantly more expensive than buying that same car outright or purchasing a used car that is only a couple years old. Here is what you should take into consideration when deciding whether to lease a car.
Unlike the other forms of acquiring a car, a person that leases a car has no ownership claim on the car. Car leasing is basically a long-term rental contract for a vehicle. The person leasing the car has to give the car back in an acceptable condition at the end of the lease term. You cannot sell the car to another person if you are leasing it and you cannot use the vehicle as collateral for another loan. All of the money that you pay towards the lease is simply a payment for the dealership to allow you to drive the car wherever you want to go.
When you are leasing a car, you are paying for the car throughout its greatest period of depreciation, and then returning it to switch into another new vehicle that you are paying for throughout its greatest period of depreciation. The cycle continues over and over with every new vehicle leased by the person. When adding this to the fact that the person will have nothing to show for their investment in the vehicle if they decide not to purchase the car when the lease contract terminates, it make leasing the most expensive option for obtaining a car.
If you lease a car, you will have no equity in the car. If you had brought the car outright, at the end of the same three year time period, you would have owned a vehicle that could be sold for thousands of dollars. By leasing the vehicle, you ensure that you will have to pay thousands of dollars if you want to stop leasing and own a vehicle. Having equity in the vehicle at a later date is a major reason why many people choose to buy a car. If there is nothing that you cannot live without on the newer car models, save some money and purchase a vehicle that is a few years old that you can afford instead of leasing a new vehicle that you cannot afford to buy.