Tips From The Top

Cracking Open Your Nest Egg…

My book Passive Income 101: a story about paying for college without selling your soul details – in the voice of a high school senior, Alexzandra – how one might go about paying for college in an “unusual” fashion…by using passive income to do it.

This morning, I was listening to a KCBS editorial on the radio, while driving to a networking meeting. It got my attention – thought I’d share.

The editorial discussed how more and more people are “cracking open their nest eggs” – retirement plans, etc.

They are doing this to get at the money – to do everything from paying for credit card debt to funding college educations for their kids.

If you are tinkering with this idea – why not explore the idea of a passive income vehicle part time, instead?

As Eric Worre of NetworkMarketingPro.com says – the only “bad thing” about network marketing is that it has had a socially undesirable reputation. But it’s the best way to spend some of your current down time (TV watching…Facebook prowling…commuting…) to make some money without raiding the piggie bank.

If you take money out of your retirement account, not only will you pay a 10% penalty, but you’ll also pay income tax on the entire amount that you take out, right now.

The theory behind retirement accounts is that you put the money in each month, and it’s not taxed. Then, when you take it out in your 60s, you are taxed on it but you are making less money, so your income tax bracket is lower.

And, of course – if you wait until you are 59-1/2 – you don’t have to pay that 10% penalty for withdrawing the $. (The idea that you pay income tax on the full amount, though they then skim 10% off that before giving it to you, would make me think three times before doing it, believe me!)

Moreover, taking money out of your retirement vehicle will mean that you aren’t earning money on it, compounding interest-free.

If you are an employee and you “take a loan” out of your retirement account instead of cashing it out, it seems like a better bet – you make monthly payments to put it back in, and the loan interest goes into your account, too. However, the money that you took out isn’t working for you until it’s all paid back, and the amount that you’re not making is likely far more than the interest you are paying yourself – with post-tax dollars! Worse, if you are laid off, or change jobs, you will need to pay the entire loan back immediately.

If instead you built up a passive income business – or your college-bound kid(s) helped you build up a passive income business – you would have your retirement funds still compounding interest, you wouldn’t pay the penalty, you won’t lose a huge percentage of it right now to taxes…plus, you would be building a business that will compound as well, once you have customers and a downline.

Think about it. Before you “raid your nest egg,” perhaps it’s time to consider having a passive income family business?