Company closing its doors

[EdT72]

My company is closing its doors. How wld I go about cashing out my 401 to invest in my own business?

[rjs]

This is not a question we can answer here. You have to ask your HR department or the 401(k) administrator what will happen to your 401(k) when the company goes out of business, and how you will access the money. I imagine everyone will have the same question, so I would expect that the company will publish some information.

Do note, though, that it remains a 401(k). If you cash it out you will have to pay income tax on the entire amount, plus a 10% penalty if you are under 59½ years old. There are exceptions to the penalty, but starting a new business is not one of the exceptions. If a 401(k) plan is terminated it's best to roll over the money into an IRA or another employer plan.

[Opus 17]

Generally speaking, if you want to keep your money in a protected retirement account, and the business is closing the 401k, you must be given notice, and you can rollover the money to a private IRA that you can set up at any investment broker or bank that you choose.  You can do the rollover electronically (best practice) or you get get a check from your current 401k and deposit it in the new IRA.  If you do this, you must complete the deposit within 60 days, and you musts deposit the entire amount of the withdrawal including any withholding.  (For example, if your 401k balance is $100,000 and you ask for a check, the plan may be required to withhold 20% or $20,000.  But you must deposit the whole $100,000 in the IRA to complete the rollover, by getting make-up funds from somewhere else.  You will get the $20,000 back in your tax refund.  If you don't deposit the entire amount, whatever is not deposited will count as a taxable withdrawal.  So it is best to do the rollover directly from bank to bank electronically.)

Once you have the money in an IRA, you can invest in anything that is permitted by the tax code.  I don't know if you can invest in your own business using IRA funds, I suspect not, but I am not an expert on that topic.  

If you take money out of a protected retirement account (either 401k or IRA) to capitalize your own business, the withdrawal will be taxed as ordinary income plus a 10% penalty, unless you turn age 55 or older in the year that the business closed (the year you separated).