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01 Jun 2017
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How Teachers Can Use a 403(b) to Start Their Own Business

Being a teacher is incredibly rewarding, and it can also be incredibly inspiring. For this reason many teachers find themselves exploring new ideas and entrepreneurial pursuits, but the one issue that dampens their drive to build their own business is their financial security.


Leaving a steady job is not an easy feat. But knowing that you have a financial safety net, like your 403(b), can give you the motivation you need to fuel your entrepreneurial spirit and transform your thoughts and dreams into reality.


If you’re ready to turn your teaching experience into a business that gives you more freedom and flexibility all year long while still making an impact on the lives of young people, it may be time turn your 403(b) into your own business.


What Is a 403(b)?


Established in 1958, a 403(b) is a tax deferred retirement plan which is available to employees like teachers, school administrators and school personnel. The name of this retirement plan refers to its section in the Internal Revenue Code.


How Your 403(b) Can Become Your Financial Safety Net


Entrepreneurs need to have some way to pay their personal expenses before their venture becomes profitable. Teachers can use their 403(b) in a number of ways to help support themselves and their family while they are getting their business up and running:

• Liquidate your retirement. This is an effective way to receive a large portion of money quickly, but keep in mind that liquidating your retirement accounts could leave you with even less than half of your retirement account balance after paying state and federal taxes.


• Borrow against your plan. You may have the option to borrow against your retirement plan with all repayments going back towards your     account balance. This loan may be ideal for those with a poor credit score as it is not contingent on passing a credit check, but it is not available for those who have already left their employer.     


• Roll the plan over to your self-employed plan. If you have already left your employer, you may want to consider establishing your own     retirement account where you can then move your vested 403(b) retirement account into your new plan.


Understand the Penalties and the Benefits


When money is withdrawn from a retirement account before the retirement age of 59 and a half, any amounts withdrawn will come with a stiff 10% government imposed penalty. You will also need to pay income tax on any withdrawn amounts which were not taxed previously, and you can miss out on years if not decades of account growth.


At the same time, tapping into your retirement account can help you in the short term. For those whose only other option is to take out a high-interest loan or a credit card with a hefty interest rate, cashing out some or all of your 403(b) may be the better financial decision. There are also no late fees and no monthly or missed payments to worry about so you can focus on what is most important -- your new business.


Each aspiring entrepreneur has a challenging journey ahead of them, and the decisions you make about how you will financially support yourself and your new venture will have a significant impact on its success. Before making any drastic monetary decisions, set aside time to speak with an experienced financial adviser to discuss your personal financial options and opportunities. 

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