TSP Withdrawl for Business Investment?

[idpadan]

Is it possible to withdraw TSP funds upon retirement in for a business investment like a francise (Subway, Quizno's, etc) without incurring substantial IRS penalties? More important, if possible, is it advisable?

Thanks in advance,

Dan

 

[Jackbnimble]

Dan,
I won't go into the if you can scenario (penalties/tax depend on age, income, deductions).
I will however give you a lecture on why you should not invest more than 10% of your retirment in a risky investment like a franchise. If you can pull out 10% or less and invest it in a winning franchise go for it. I use 10% becaue I am sure you have heard about diversification. You do not want to put all your eggs in one risky basket.
Please do your homework on location, fees, covenant restrictions, leases etc before investing in any franchise. I have read a few franchise agreements & what they basically say is "you are at the mercy of the franchisor." The one I worked with had an agreement that they would not open any locations within a 5 mile radius. Well they bought out the competition and converted all of their stores to corporate owned stores. We asked them about it because some of the locations were a block away from our locations & they said "we are complying with the franchise agreement we have not "opened" any new stores we only converted some".
The second part is, if you are "retiring" you better get ready to work your can off. Small businesses do not run themselves. If you have employees in a cash intensive buisness you better be around or your profit walks out the door.
The only idea worse than putting most of your retirement into a small business is borrowing money to start it.

 

[camper65]

Dan,

(For what it's worth.)
I have made my mistakes!!!
Only if you can afford to lose it!

Allen

 

[SkyPilot]

Is it possible to withdraw TSP funds upon retirement in for a business investment like a francise (Subway, Quizno's, etc) without incurring substantial IRS penalties? More important, if possible, is it advisable?

Thanks in advance,

Dan

The purpose of your withdrawal will not likely effect any applicable penalties. And, I agree that using your retirement for a risk based venture may put your golden years in jeopardy. And, will any of those venture pay off as would a reasonable projected returen in your TSP? Owning a franchise is labor and time intensive, and much hidden expense. Be sure to really crunch the numbers. It could be years before you see a positive cash flow.

There may be some exceptions regarding medical issues or court orders, but that is another discussion

 

[Jackbnimble]

ID.
Of course you are asking a bunch of risk averse government workers(generally) did you really expect to get a "go for it" response?

 

[idpadan]

"a bunch of risk averse government workers" boy, does that describe me.

Here are the details of what I'm looking at.

I am eligible to retire next Feb when I turn 50. I have 450K in TSP and plan on letting it ride for another 10-12 years before touching it. There is a local business with three partners, one of who is looking to sell his third. I have been watching from the sidelines for about a year and the business appears sound. I'm considering taking a TSP disbursement (25-30K) to buy out this partner. I read somewhere that it is permissible to take a TSP disbursement for the purposes of investing in a business without incurring the 10% early withdrawal penalty - was I dreaming (hey, it is possible)? What are the tax implications of an early withdrawal?

I recognize this will not be a "retirement" job and am ready to work but am hesitant to jeopardize my real retirement in 10-12 years.

Any more advice?

Thanks, Dan

 

[camper65]

"I read somewhere that it is permissible to take a TSP disbursement for the purposes of investing in a business without incurring the 10% early withdrawal penalty - was I dreaming (hey, it is possible)? What are the tax implications of an early withdrawal?"

You read some were????
As far as I know you have to be 59 1/2 to withdraw wihout penalty. And that is a one time event. (There are some exception, health issues, etc.) I could be wrong. You will have to pay as ordinary income both state and Federal. Check that business thing! (There may be changes that I don't know about!)

 

[Show-me]

No provisions for a business that I can find. You can do a age-based withdrawal age 59 1/2 and older with out penalty. Any thing else will be penalized 10%. This penalty tax is in addition to the ordinary income tax you will have to pay.

You can not even barrow against it unless you are in a pay status. As soon as you retire you are required to pay the remaining amount back.

Sounds like you need a business loan.

 

[Gilligan]

Is it possible to withdraw TSP funds upon retirement in for a business investment like a francise (Subway, Quizno's, etc) without incurring substantial IRS penalties? More important, if possible, is it advisable?

Thanks in advance,

Dan

Google “Self Directed IRA”.
You can do a roll over from TSP to a self directed IRA. Your IRA then can buy a franchise. (Subway is one of the lowest priced franchises.)