Using plan assets to purchase business

[Monica Barnard]

“Bob” worked for ABC Corporation. When “Bob” left ABC, he established a Profit Sharing Plan and rolled his $100,000 401k balance into his new plan. He then withdrew $95,000 in order to purchase and operate his new business. I have read Sec. 4975© and (d), and 406 and 408(e). I’m not clear on how to treat the money “Bob” withdrew. Is this treated as purchase of an investment by the plan? If it’s not a distribution, how do I show this on the 5500?

[Bill Presson]

Monica, this really needs to be reviewed by an attorney. The IRS has started looking very closely at these arrangements.

IRS Rollovers Memo

[masteff]

This thread from 2008 has some additional links of use in it: http://benefitslink.com/boards/index.php?showtopic=38399

But the general concensus is that it can be done as a plan investment but it's very tricky and needs an attorney.

EDIT: I just looked at Bill Presson's link and it's newer than the info I linked above, so do give Bill's linked IRS memo a lot of weight over the older board discussions.

[Monica Barnard]

Thank you both for this guidance. Very helpful.