The “Jury” Decides on ROBS – Can you legally fund a business purchase or startup with a Self-Directed 401k? September 15, 2011
Posted by Jeff Nabers in : Business Start-Ups, Rollovers As Business Startup, Rollovers As Business Startups, Self Directed IRA Solo 401k, Small Business Lending, Uncategorized , add a comment
Boy do I get a lot of blowback every time I share my findings about why the government has declared ROBS illegal!
Why is there not a specific government ruling on ROBS?
Great question!
It’s because once an issue has been ruled on, they don’t repeatedly consider it. “They” are the Department of Labor, and the first step of learning about Self-Directed IRA and 401(k) rules is finding out that “prohibited transactions” are an issue outside the jurisdiction of the IRS and in the hands of the Department of Labor (DOL).
When ROBS Was Ruled On
It was 2006. Debra Buchanan, the creator of the IRA LLC, asked the DOL a question about structuring an investment deal to avoid “prohibited transaction” status. (This was before she split with Guidant and became my legal counsel, but that’s another story.)
The DOL came back and said (paraphrased)
It doesn’t matter how you structure things or pursue exemptions. We’ve been clear throughout various rulings ["Advisory Opinions"] that a specific part of the law books [IRC 4975(c)(1)(D)] makes it prohibited for IRA or 401(k) funds to be used to benefit their account owner or family, unless it’s a taxable distribution.
That’s translated into humanspeak. You can see the actual ruling here. Untranslated legal language in it says:
…Department opinions interpreting [regulations] have made clear that a prohibited transaction occurs when a plan invests in a corporation as part of an arrangement or understanding under which it is expected that the corporation will engage in a transaction with a party in interest (or disqualified person).
The ROBS Coffin Is Sealed
This issue is so straightforward because DOL ruled on it as a bigger issue. DOL has received countless letters that ask “But what if I structure my Corporation this way or that way… do I then successfully evade the rules and regulations?”
And they always respond, “No. Using Self-Directed IRA or 401(k) funds to benefit the account owner or their family is always prohibited unless it’s through a taxable distribution.”
Tip: Don’t Piss Off The Government
I know that’s kind of common knowledge, but I wonder if you notice from the DOL language—”Department opinions interpreting [regulations] have made it clear”—that they are already (in 2006) annoyed at all the clever attempts at evading the rules and regulations.
Not a whole lot of wiggle room here. Zero, to be exact.
I know, I know… it’s bitter medicine. Especially if you dreamed up an awesome future all provided to you by ROBS.
But it’s quite easy to swallow if you get real and refocus your attention on legal strategies that actually work.
Nabers Group vs. CheckbookIRA.org, IRA Financial Group, Guidant, IRA123, Safeguard Financial, NAFEP, Asset Exchange Strategies®, etc September 12, 2011
Posted by Jeff Nabers in : Business Start-Ups, Rollovers As Business Startup, Rollovers As Business Startups, Self Directed IRA Solo 401k, Small Business Lending , 2comments
Why should you use my company to setup a Self-Directed IRA, IRA LLC, or Solo 401(k) instead of those others?
It’s quite simple really…
Those other companies all promote an illegal scheme called ROBS, and if you are a client of a company promoting an illegal scheme, you are a target for nasty IRS audits.
Best case audit scenario: After months or years of being audited, you are finally cleared. Your assets might be frozen during that time, and you may incur tens of thousands of dollars in attorney fees to defend yourself.
Worst case scenario: If you used the ROBS strategy yourself with, say a couple hundred thousand dollars, you could incur MILLIONS of dollars in taxes. Yep, you read that right. The tax penalties are (more…)
The End of Small Business Financing with IRA and 401k Funds? (Part 2) October 19, 2009
Posted by Jeff Nabers in : Business Start-Ups, Rollovers As Business Startup, Rollovers As Business Startups, Self Directed IRA Solo 401k, Small Business Lending , add a comment
[This is a continuation of a previous post. You should read that one first so this makes sense.]
The IRS Responds
For the first time ever, the IRS actually addressed the “financing a small business with an IRA or 401(k)” strategy. They called it “ROBS” for “roll over business startup,” and issued a letter on October 1, 2008. This letter basically stated:
- We know about the ROBS strategy
- We are concerned about it for several reasons
Celebrate and Ignore
Most ROBS promoters spun the IRS ROBS letter as a long-awaited government blessing for the strategy. They said that the concerns that the IRS listed were administrative errors, such as (more…)
The End of Small Business Financing with IRA and 401k Funds? (Part 1) October 15, 2009
Posted by Jeff Nabers in : Business Start-Ups, Rollovers As Business Startup, Rollovers As Business Startups, Self Directed IRA Solo 401k, Small Business Lending , 9comments
Guidant calls it Audeo. Benetrends calls it Rainmaker. SDCooper calls it ERSOP. It goes by many names and it’s gotten a lot of attention from the franchise industry and, as of about a year ago, the IRS. The IRS calls it “ROBS” for Roll-Over Business Startup.
What is it?
It’s a strategy where a person with retirement funds:
- Forms a C corporation.
- Uses the new C corporation to adopt a 401(k) or profit-sharing plan.
- Performs a rollover from existing retirement funds (IRA, 401k, etc) into the new 401(k) plan.
- Directs the new 401(k) plan to invest into the new C corporation by purchasing shares of stock.
- Now this person has a C corporation with some or all of their retirement funds in it, and they are told they can use the funds to run the corporation, launch a venture, buy a franchise, and even pay themselves a salary.
Special Powers – For Good or Evil?
This is a tremendously (more…)
Feedburner Subscribe
