Roll Overs for Business Startups ROBS IRS of Tax Revenues: So Tread Carefully Before Rolling Over

Promoters have been marketing on the internet the use of 401(k) funds to purchase franchises or startup businesses, which normally require up front material sums of monies to launch. The procedure typically involves the creation of a C-corporation by the business owner, then the setup of a retirement plan by it for its employees, followed by the roll over of the new business owner-employee’s 401(k) funds into this new plan, and ultimately the exchange of corporate stock for the funds in the plan. Hence, the acronym ROBS: roll overs as business startups. However, if you are seriously contemplating pursuing such a financing maneuver, tread carefully. A recent memo issued by the Internal Revenue Service characterized the roll over for a business startup as a “scheme” in the marketplace to access retirement funds to evade income taxes and the withdrawal penalty of 10% on their premature distribution. Although the IRS has not yet classified ROBS as non-compliant per se to federal laws, regulations, and codes, it will scrutinize their setup on a “case-by-case” basis. In other words, you may be flagging yourself for an audit.  In the article, “Roll Overs as Business Startups ROBS IRS of Tax Revenues“, are important steps to undertake if you are seriously considering rolling over your 401(k) into a business startup.

About William Brighenti

William Brighenti is a Certified Public Accountant, Certified QuickBooks ProAdvisor, and Certified Business Valuation Analyst. Bill began his career in public accounting in 1979. Since then he has worked at various public accounting firms throughout Connecticut. Bill received a Master of Science in Professional Accounting degree from the University of Hartford, after attending the University of Connecticut and Central Connecticut State University for his Bachelor of Arts and Master of Arts degrees. He subsequently attended Purdue University for doctoral studies in Accounting and Quantitative Methods in Business. Bill has instructed graduate and undergraduate courses in Accounting, Auditing, and other subjects at the University of Hartford, Central Connecticut State University, Hartford State Technical College, and Purdue University. He also taught GMAT and CPA Exam Review Classes at the Stanley H. Kaplan Educational Center and at Person-Wolinsky, and is certified to teach trade-related subjects at Connecticut Vocational Technical Schools. His articles on tax and accounting have been published in several professional journals throughout the country as well as on several accounting websites. William was born and raised in New Britain, Connecticut, and served on the City's Board of Finance and Taxation as well as its City Plan Commission. In addition to the blog, Accounting and Taxes Simplified, Bill writes a blog, "The Barefoot Accountant", for the Accounting Web, a Sift Media publication.
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