Filing bankruptcy could damage new venture

Dear Bruce: My wife is 50, and I am 58. Our gross income is $72,000. My wife works for the government and has $30,000 in her 401(k). I recently started my own business. I have $22,000 in my 401(k). We are approximately $30,000 in debt. We are wondering about cashing in my 401(k) to pay off most of our debts and then putting money back into an individual retirement account. We feel we could put in a minimum of $400 a month to replenish it. We also could declare bankruptcy, which I really do not want to do. Any advice would be greatly appreciated. – R.W., via e-mail

Dear R.W.: If you were to withdraw the $22,000, assuming that is possible, you would owe a $2,200 penalty plus the taxes involved – not a very good move. Further, you mentioned that your wife has $30,000 in a 401(k), which is a retirement plan for private employers. I think perhaps you mean a 403(b) or something similar but without regard to that, paying the penalties and the taxes would be insanity. You also mentioned that you started a new business. The last thing you need is a bankruptcy in your recent background. That act alone could put a knife right in the belly of the business. If you can afford $400 a month, you could make at least your minimum payments. Perhaps that’s not a happy thought, but at the very least until you are 59-1/2, I would leave the $22,000 in your 401(k) and, if at all possible, keep it there. While you’re certainly not of advanced age, both of you are sneaking up on retirement, and you have very little in the way of assets. It seems to me that spending discipline should be your top priority, perhaps paralleled with breaking your neck to make your new business work.

Dear Bruce: I am 69 and own half of a business. The other half is owned and operated by my son. I have pulled most of my assets from the stock market, as I feel I need to preserve them at this point in my life. About 90 percent of my assets are now earning between 3 percent and 4 percent in treasuries and certificates of deposit. Only about $350,000 is in equities. My wife believes we should pay off our $125,000 home mortgage, since at 5.625 percent it is a higher rate than we are earning. We refinanced for a full 30 years about two years ago. Since we are in the highest tax bracket, I tell her it’s a wash. She is persistent, and I am now sitting on the fence. With the stock market moving sideways now and maybe for the near future, does it make sense to pay off the mortgage? – J.W., via e-mail

Dear J.W.: All the way through your letter I would be on your wife’s side since, at your age, owning your own home, free and clear, is a comforting thing. However, the fact that you are in the highest tax bracket does make it a wash. Should the interest rates rise, as most of us believe they will sooner or later, the wash then becomes a plus as long as you’re holding compensating balances equal to the mortgage in very safe environments. I would hang on to the mortgage.

Dear Bruce: I was given your name by an acquaintance in regard to franchise advice. I am looking to start a business, have looked at some franchises and found one that I like. I am just a little lost on how to proceed or where some good resources may be in regard to financing and things like that. If you could point me in the right direction I would be appreciative. – H.L., via e-mail

Dear H.L.: I’m a little troubled by the way your phrased your question. You say you want to start a business, and that you have looked at franchises. If you are saying that you wanted to start a particular kind of business and have considered a franchise, that’s good. If you’re just saying that you want any business, and you would settle for a franchise, that’s not so good. There are a number of books that have been written on franchising. One Web site, www.quintcareers.com/franchising_books.html, offers a multitude of books that can direct you through every aspect of franchising. These books are just the tip of the iceberg. Franchising has a great deal to recommend, as well as some things that cause concern. On the one hand, you are learning from someone else’s experience and mistakes. On the other, you are severely restricted as to creativity, and you’ll have a partner for life. Please read three or four of these books and publications, then get back to me with more specific questions.

Dear Bruce: I need to find a home-based business due to health and lack of stamina. I was hoping you had some advice or suggestions for a 62-year-old psychotherapist. My only requirement is that it generates enough money to provide a decent living. I have minimal computer skills, but can learn if the profit is there. – T.T., via e-mail

Dear T.T.: Home-based businesses are nowhere as easy to establish and profit from as many would like you to believe. I can’t recommend a specific enterprise. I would suggest that you try to go to your strengths. I would look into your experiences as a psychotherapist and see how that can be translated into providing information to others whether it’s marketed on the Internet or through more traditional advertising. I wish I could be more positive. There are many people working at home and making a good living at it. More often than not, you have to be creative on your own, and create the opportunity as opposed to paying someone for these opportunities. There are many organizations that will purport to give you surefire ways to make money at home. I have never found one that I could recommend. Good luck.

Bruce Williams is a national radio talk show host and syndicated columnist.