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Administration November 26, 2008
IRS Warns Business Funding Solution ROBS Retirement Plans
November 26, 2008 (PLANSPONSOR.com) - The Internal
Revenue Service (IRS) has released a memo warning businesses
that funding your business with your retirement plan may not
be a good solution.
Reported by Rebecca Moore
Entrust New Direction IRA, Inc. explained in a news release, that financial companies that promote the “Rollovers as Business Startups”, or ROBS, arrangement claim the IRS has pre-approved the arrangement for years. However, the IRS memo titled, “When ‘Too Good to Be True’ Very Well May Be: Funding Business Startups with Plan Assets” warns that ROBS arrangements will be scrutinized very carefully, “may violate the law,” and “may be prohibited transactions.”
If the arrangement is a prohibited transaction, the retirement account in question could be closed and the funds subject to excise taxes. The IRS says it will focus on any transaction that claims you can transfer money without paying taxes, according to the news release.
The IRS memo says the agency has seen an increase in transactions that try to “exploit the generous tax benefits enjoyed by qualified retirement plans .”For business funding transactions, the IRS requires a custodian between the retirement plan holder and the retirement funds, and business owners cannot spend the retirement money on themselves or their companies.
Entrust New Direction IRA, Inc says a solution it is offering is a new service, the IRA Card which provides quick access to IRA funds but keeps the custodial layer between the IRA holder and the IRS. The IRA Card can be used like an ATM or a credit card for qualified retirement plans, providing easy access without compromising the tax-free or tax-deferred status, according to the news release.
More information is at www.newdirectionira.com .