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.

Solo 401k was thrust in the spotlight again last week because of its powerful ability to reduce your self-employment income through large tax-deductible contributions.

Unfortunately, the writer of that WSJ article is mildly financially retarded. Take a look for yourself. Read the article to hear about the powerful tax benefits (albeit presented in a fantasy situation), and then read the comments to have some real people bring the concept back to reality.

[WARNING: There are two instances of cursing. If you are easily upset by cursing or a minor, don't watch this video]

If you already know how ridiculously bad the Federal Reserve is for you and I, that video is probably a source of comedy. Or maybe you’ll say, “Finally something I can share with my friends who actually believe what the TV and newspapers say.”

But if you didn’t already know about the money game that is currently doing its best to destroy the economy of the wealthiest country in the world, then that probably wasn’t funny at all. It was probably eye opening.

Either way, that video is 90% accurate and its message is important.

You see, we learn and forget over and over that the crowd is wrong. Most people in the crowd lost their shirt in the real estate bubble (especially Self-Directed IRA & Solo 401k investors). Many of those exact same people lost their shirt in the tech stock bubble in 2000. Chances are you know at least one person who always ends up in the crowd and gets financially shafted by these kinds of things.

The trick here is to not forget. Remember that the crowds almost always lose in investing.

And what has the crowd done in the past few years?

“My goodness! Things are going crazy! I’m going to seek the safety of cash. Cash is king. I’m pulling all my money out of stocks and putting it money market accounts or even just a savings account.”

Now try remembering.

Okay, that’s the move the crowd made, so cash is what’s going to blow up and crash next, right?

Right.

——

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This blog (JeffNabers.com) will return to its roots and focus exclusively on Self-Directed IRA and Solo 401(k) investing. That means no more posts about economics here… I’m going to put those on a new blog:

Help me name my new blog here

Thanks for your help!