Advice on getting money for business from 401k

Dear Mr. Berko: I have a great idea (please don't share it with your readers) that I believe can be turned into a very successful business. Here's my problem: In June, my bank really liked my idea and was willing to lend me all the money I needed. Well, things have changed, and I'm short about $115,000. As you know, I have invested all the money I have, quit my job, and now I'm at an impasse. But my attorney came to my rescue. I have $383,000 in my 401(k). My attorney suggested I take $191,000 out. It has to be $191,000 because I have to pay a 10 percent early takeout penalty plus ordinary income taxes of 30 percent to net $115,000. That's $76,000 of taxes, which really kills me because this account was worth more $600,000 a year ago. I've enclosed my 401(k). Would you please tell me which of these 12 mutual funds you think I should sell to raise the money I need.

-- R.S., Cincinnati

Dear R.S.: I think your idea is sensational and should provide you and your family with good financial comfort for the future. However, you are 57 years old, and it took you 31 working years to accumulate that 401(k) money. Before you liquidate some of your 401(k), you might ask your wife if she's comfortable with this new decision. She has a right to voice an opinion.

And please tell your attorney to kiss a fish, stick to legal matters and, if he gives you any more financial advice, tell him you'll sue him! This puttering jackass is $76,000 dangerous to your financial health. Please tell him I said so.

I'm not going to tell you which mutual funds to sell because there's an easy way to withdraw that money without paying a pfennig, peso or penny in taxes. Visit your certified public accountant, and I hope he has more brains then the fool you have for a lawyer. Tell your CPA that you need to form a corporation and you want to call it RS Enterprises. Tell your CPA that RS Enterprises must have a 401(k) plan. Then tell your CPA to complete all the papers to transfer the 401(k) plan from your previous employer to the new plan with RS Enterprises, who is your new employer.

Now, under 401(k) rules, your new plan can sell $115,000 in mutual funds without incurring a tax obligation. Then, as easy as one, two and three, your 401(k) can buy $115,000 worth of shares of RS Enterprises. That $115,000 can be used by RS Enterprises to purchase inventory, pay salaries, rent, utilities and other business expenses. So, by reinvesting this money in RS Enterprises stock, rather than taking a cash withdrawal, you eliminate the 10 percent early withdrawal penalty plus ordinary income taxes on the amount you withdrew.

If you follow this advice, you won't have to withdraw $191,000, and you won't have to pay $76,000 in federal taxes. You just liquidate $115,000 of market value mutual funds, buy $115,000 in RS Enterprise stock and put the proceeds into your business checking account. When you have completed the paperwork, send me an e-mail, and I'll recommend how many shares of each of your dozen funds to sell to raise $115,000.