- Part 3

Contributions to a SEP IRA and ROTH IRA in the same year?

Posted on November 11, 2011 by ryan

Question: I have a sep IRA, already contirbute maximum to Sep IRA this year, can i also contribute to Roth IRA in additional to Sep IRA? Thank you.”

Answer: The answer is yes, you can. The SEP IRA is an employer plan, and it is the employer who is making the contribution (even if you are self-employed). The Roth IRA is only dependent upon you having earned income at least in the amount of the contribution and not in excess of the income limits. Even if you exceed the income limits, you can contribute to a traditional IRA and then do a Roth conversion.

Posted in Self-Directed IRA & Qualified Plan Information, Self-Directed Roth IRA | Tagged Contribution, Conversion | Leave a comment

I invested with crooks and was awarded a judgment but…

Posted on October 28, 2011 by ryan

Question: In 1997 my bank rolled over $150,000 to a rollover account in florida. At this time the monies were stolen. I was awarded a judgment against the 4 persons that took the monies but have only collected $6,000 so far. If, and when I collect any or all monies, do they belong in my IRA account that they came from? And can a third party like a bankruptcy trustee access the judgment and any monies collected to pay off any creditors?

P.S.
I never did see or have control of these funds. They were transferred into a self directed IRA and stolen from there. I have been told that a bankruptcy trustee can not use these funds to pay off any creditors and any funds recovered should go back into my ira and if treated as a withdrawal it would be taxable event. If this true is their any law and or cases to support this?

Answer: With regard to your question below, it is somewhat difficult to answer without more information, and in any event the question is best answered by your bankruptcy attorney as well as the attorney who is helping you collect this judgment. My first question would be who has the judgment, you or your IRA? If you were the plaintiff individually, then the money collected may not be exempt from the bankruptcy estate since it isn’t in the name of your IRA, whereas if the judgment is in the name of your IRA it is may be exempt as an asset of your IRA, not you individually, depending of course on state law where you are as well as whether you chose state or federal exemptions in your bankruptcy. Your attorney will be able to give you better information than I can.

The bottom line is that there are insufficient facts to really answer your question, and what you really need is legal advice from an attorney who has all the facts in front of him or her. I’m sorry I can’t be of more assistance to you. Good luck in your future endeavors and thanks for the question.

Posted in Self-Directed IRA & Qualified Plan Information, Self-Directed Traditional IRAs | Tagged Bankruptcy, IRA, Self Directed IRA | Leave a comment

Can I loan money to a company I own? And what about Rollover for Business Startup (ROBS)?

Posted on October 12, 2011 by ryan

Question: A husband and wife both have a Roth IRA & husband has a 401(k). He plans to leave his corporate job & start his own business. If Roth & 401(k) funds are transferred to self-directed IRA, can husband & wife use IRA funds to loan start up money to husband’s new business, as along as they pay interest on the loan to IRA? Is this an acceptable or prohibited transaction and how should the loan be structured? If prohibited, is therea way to structure the loan so as to be an acceptable transaction?

Answer: Thank you for your inquiry. The short answer to your question is no, neither the Roth IRAs nor your 401(k) which is rolled into an IRA can loan start up money for your new business venture. There is a list of persons with whom the IRA is not permitted to do business, called disqualified persons. A business owned entirely by you would be a disqualified person, and therefore the proposed loan would be a violation of Internal Revenue Code Section 4975(c)(1)(B), which says that the direct or indirect “lending of money or other extension of credit between a plan and a disqualified person” is a prohibited transaction.

I have heard of people using their 401(k) plans to start a new business by using what the IRS terms a ROBS arrangement (Rollovers for Business Startups), but the IRS clearly does not like these arrangements and believes that the way many of them operate result in a prohibited transaction. I have attached some information in this regard. If you do want to go down this path, be sure that whoever you choose is very familiar with the IRS position and that you feel they have adequately dealt with the issues. Certainly there are many companies out there offering the ROBS set up. It is fairly expensive to do, though, since it involves setting up a C corporation, having the C corporation adopt a 401(k) plan, rolling the IRA or former 401(k) into the 401(k) for the new company, and purchasing shares of the company as employer securities. You cannot roll your Roth IRAs into the 401(k) plan, only traditional IRAs.

Finally, you should be aware that Entrust cannot give you tax, legal or investment advice, and so we could never advise you on how to structure a particular investment or provide you with the forms to do so. Good luck with your new business venture. Have a great day!

IRS ROBS Paper

IRS ROBS Analysis

IRS ROBS Fail Paper