ROBS Plans and IRS Form 5500

Friday, May 31, 2013

By Beverly DeVeny, IRA Technical Expert

Follow Me on Twitter: @BevIRAEdSlott

In late 2009 IRS started a project on rollovers as business start-ups (ROBS). This is a strategy that has been heavily marketed by several companies and targets individuals that want to finance business ventures using their retirement funds. They are directed to establish a self-directed IRA, a corporation, and a 401(k) plan for the corporation. The plan allows participants to roll in IRA funds.

The individual funds the self-directed IRA with their existing retirement funds and then rolls funds from the IRA to the newly established 401(k) plan. The plan then uses the funds to purchase shares of the newly established corporation’s stock (generally it purchases all the shares). If you followed all of this, here is where we end up: the retirement money is now in the checking account of the corporation and no taxes were paid.

All of this is, in theory, allowed under the tax code. Understandably though, IRS has some concerns about this strategy – which you might have gathered from its mere use of the acronym “ROBS.” As a result of the ROBS project, IRS has found that there is an almost universal misunderstanding of the rules regarding the annual filing of IRS Form 5500.

According to IRS, there is an exemption for the Form 5500 filing requirement IF plan assets are less than $250,000 and the plan has deferred compensation for only the business owner and/or their spouse who wholly own the business. In the case of a ROBS arrangement, the owner of the business is not the individual but instead, is the company plan. Remember the cash flowed into the plan which then bought all the shares of stock in the company so the plan is the business owner.

If you have done a ROBS transaction or if any of your clients have done this, make sure that Form 5500 is timely filed for the business. The form must be filed by the last day of the 7th calendar month after the end of the plan year. For a calendar year business, that means the form must be filed by the end of July.
 

Receive Ed Slott and Company Articles Straight to Your Inbox!
Enter your email address:

Delivered by FeedBurner

 

Posted in: , , , ,

Content Citation Guidelines

Below is the required verbiage that must be added to any re-branded piece from Ed Slott and Company, LLC or IRA Help, LLC. The verbiage must be used any time you take text from a piece and put it onto your own letterhead, within your newsletter, on your website, etc. Verbiage varies based on where you’re taking the content from.

Please be advised that prior to distributing re-branded content, you must send a proof to [email protected] for approval.

For white papers/other outflow pieces:

Copyright © [year of publication], [Ed Slott and Company, LLC or IRA Help, LLC – depending on what it says on the original piece] Reprinted with permission [Ed Slott and Company, LLC or IRA Help, LLC – depending on what it says on the original piece] takes no responsibility for the current accuracy of this information.

For charts:

Copyright © [year of publication], Ed Slott and Company, LLC Reprinted with permission Ed Slott and Company, LLC takes no responsibility for the current accuracy of this information.

For Slott Report articles:

Copyright © [year of article], Ed Slott and Company, LLC Reprinted from The Slott Report, [insert date of article], with permission. [Insert article URL] Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.

Please contact Matt Smith at [email protected] or (516) 536-8282 with any questions.