Lately, I have had a number of people who have contacted me about these ROBS plans that they see on the Internet as some sort of manna from heaven where an entrepreneur can tap their retirement savings to start a new business, tax free.
People have asked me whether these plans are legitimate within the boundaries of the Internal Revenue Code and ERISA. As I say with anything that deals with retirement plans, a lot of things are possible as long as you work with the rules and regulations set for retirement plans. Reading some of the promotional work placed by these ROBS plan “hucksters”, the rules regarding prohibited transactions, plan permanency, and benefits, rights, and features aren’t considerations. With the IRS taking closer look at these plans, it is more important than ever to make sure these type of plans adhere to every retirement plan rule out there.
This industry is littered with plan sponsors who have run into qualification blunders because some promoter was more interested in pushing product than protecting the client. So any client interested in a ROBS plan should consult with a reputable third party administration firm and an ERISA attorney. As you well know, if it’s too good to be true, it often is.
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