Sure you could, but there is the likelihood that you would have to deal with some pretty hefty adverse tax consequences were you to do so. Among other things, there may be early withdrawal penalties on top of income taxes that you would also have to pay on the funds you may withdraw. There may also be vesting requirements on certain portions of your account that could result in additional losses or forfeitures. By the same token, though, there may be some creative ways to structure an investment in a new business using 401(k) funds such that it would not be deemed a withdrawal from the plan. So, before you do anything, you should talk to the plan administrator and go see a lawyer who specializes in employee benefits and retirement plans.
If possible, you shook look into borrowing against the 401k rather than dipping into the actual fund. Borrowing would avoid the adverse tax consequences the prior poster alluded to.
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Yes, you can always use money from your 401K that you are vested in. Your employer may place restrictions on what you can and cannot take out of the plan. However, if you take out the money and do not intend to replace it you will have to pay a penalty of at least 10 percent of the money taken out of the plan, and the amount you take our will be taxable in the year you take it out. You may be able to take out a plan loan that would avoid these consequences, but you will have to pay back the loan under the terms of the plan or it will face the same penalty and tax consequences.
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You have received some good advice from prior respondents, so I will add only briefly based on my experience. There are a number of self-directed 401K providers and self-directed IRA providers that can help you direct the 401K to make its investment in the new business. That does not constitute a loan or a withdrawal if done correctly. Often, the provider will require that the purchased business have at least one "manager" that is separate from you or your family (e.g., at attorney or an accountant). The tools exist, but the path to using them can be tricky. Get advice from a professional who deals in this area.
The foregoing does not constitute legal advice and does not establish an attorney-client relationship.