A 30-year-old caller from St. Louis, Missouri, phoned into The Ramsey Show with a big dream: she wanted to open a wedding venue in her local wine country. (1)

Maria has about $100,000 in her 401(k) and was considering tapping into her retirement savings to make the dream a reality.

On paper, she looks financially stable: she earns around $115,000 a year between her full-time supply chain job and a weekend bartending gig.

However, Maria’s financial picture is more complicated. She and her boyfriend recently purchased a $450,000 home, she owes $24,000 on her car, and she still carries $15,000 in student loan debt.

Her question for personal finance guru Dave Ramsey was simple, though: should she pull money from her 401(k) to chase her business dream?

Ramsey’s answer was clear: “Never pull money from your 401(k) for a business.” He explained that cashing out retirement funds before age 59½ comes with a 10% penalty, plus income taxes. Altogether, it’s like borrowing money at 40% interest.

On top of that, Ramsey stressed that she needs to pay off her personal debt before starting a business. He pointed out that he essentially owns 14 businesses under the Ramsey umbrella and trains thousands of small business owners a year.

“We don’t tell people to grow their business with debt,” he said. Carrying debt into a risky venture only increases the chance of failure.

Instead, Ramsey offered a smarter alternative: consider partnering with a local winery. The caller could create a joint venture where the winery puts up the money, while she runs the wedding operation. That way, she shares the risk, proves the concept, and builds the business slowly without jeopardizing her retirement.

He also suggests running it on evenings and weekends for a while to build up income before she quits her day job. As Ramsey put it, “pull the boat up close to the dock before you step in. People who leap get wet.”

Opening a small business is an exciting goal, but it’s also costly. According to Bankrate, the average cost to launch a small business is $40,000 for the first full year. (2)

Some businesses require even more, especially if you need property, staff, and specialized equipment. So it’s worth taking the time to plan your steps carefully.

Here is how to start:

Personal debt is already a burden, and it only adds pressure when you’re trying to manage unpredictable business cash flow.

Becoming debt-free gives you breathing room and ensures you aren’t juggling personal bills with business expenses if things get rocky.

Not all businesses are created equal — some need little more than a laptop, while others, like a wedding venue, demand major upfront investment. Before moving forward, research the costs.

For Maria’s venue, that might include land prices, construction costs, licensing requirements, and ongoing expenses such as staffing and insurance. Run detailed financial projections to get a clearer picture of what’s truly required.

Borrowing from a 401(k) is one of the most expensive ways to finance a business. Beyond the 10% penalty and taxes, there’s the opportunity cost: money withdrawn today won’t grow for decades, potentially shrinking retirement by hundreds of thousands of dollars.

Instead, consider alternatives: saving aggressively, using side income to build startup capital, or like Ramsey suggested, a joint venture with an established business that can share costs.

Ramsey’s advice to start small makes sense. Hosting weddings in partnership with a winery, renting a high-end tent, or managing events on nights and weekends are all ways to test demand without betting the farm.

If the concept works, profits can be reinvested into buying land or building a permanent venue later. If you’re considering starting a new business, look for similar ways you can reduce the risk of failure.

Opening a business is always risky, but draining retirement savings to do it, especially while carrying personal debt, raises the stakes to dangerous levels.

The Ramsey team’s advice is simple: get out of debt, do your homework, and start slow. With patience and planning, your dream could still become reality — without jeopardizing your financial future.

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The Ramsey Show (1); Bankrate (2).

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.