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asset with minimum - has to be discriminatory, right?


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In a plan where everyone is in self-directed brokerage accounts, two of the doctors (of course) have stumbled onto a non-publicly-traded stock that they want to buy.  The financial advisor can't get them access to it through his platform, and the doctors aren't old enough for in-service distributions of any sizable amounts, so they are looking to change brokers to get access to this asset in the plan.

The asset itself has a minimum - I've heard varying accounts of either $25K or $10K to buy in.  Is that in and of itself discriminatory?  If it's $25K, then no one else besides the doctors have that much in their accounts (at least as of 12/31/18).  But what if it's $10K - pretty much everyone has that much.

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Last time I looked (which was quite a while ago), there was no Treasury department rule or regulation that directly addresses this kind of question.  Practitioners had a range of views about how or whether a condition imposed by the investment but not by the plan might affect effective availability of a particular form of investment.

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6 hours ago, Fiduciary Guidance Counsel said:

Last time I looked (which was quite a while ago), there was no Treasury department rule or regulation that directly addresses this kind of question.  Practitioners had a range of views about how or whether a condition imposed by the investment but not by the plan might affect effective availability of a particular form of investment.

I agree with Peter. My position is that the plan let's investors invest in whatever they want and can invest in. If some can't meet the minimum, that is not 401(a)(4) nondiscrimination, but rather a fact of economic life. Technically,  the closest you will come, one way or the other, is 1.401(a)(4)-4(e)(3)(iii)(C), which says that the right to a particular "form" of investment is a BRF, and then says employer stock is a particular form. But I don't really think that has the answer to your question, AlbanyConsultant, and there is no further elaboration on it, e.g. in PLRs. The federal securities law (e.g., Reg D), says that you determine qualification of the investor in a self-directed plan based on the participant, and I don't think the IRS would want to take a position that was in conflict (sort of) with SEC.

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Absent an on-point text in a rule or regulation and if there is no clear direction in nonrule guidance, a lawyer, certified public accountant, or other IRS-recognized practitioner acting within her scope might render written advice that there is substantial authority for a position.  In determining additional tax on a substantial understatement, a substantial-authority position is treated, even without disclosure, as properly shown on the tax return.

 

Substantial authority is more than reasonable-basis but can be less than more-likely-than-not.

 

“There may be substantial authority for the tax treatment of an item despite the absence of certain types of authority.  Thus, a taxpayer may have substantial authority for a position that is supported only by a well-reasoned construction of the applicable statutory provision.”

 

26 C.F.R. § 1.6662‐4(d)(3)(ii)

https://www.ecfr.gov/cgi-bin/text-idx?SID=a112bf10c0fa27ecf5e056ed105e5a79&mc=true&node=se26.15.1_16662_64&rgn=div8

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My recollection - whether this was anything official or not I don't remember, but I am actually pretty confident in this - is that a minimum investment requirement set by an investment firm is "ok."  Saying "you can have a brokerage window if you have at least $10,000" is not ok.   Just be careful that you don't inadvertently wind up with "anyone can do whatever they want" with accounts scattered all over.

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