Plan Investment: A Race Horse

[Randy Watson]

A one man DB plan wants to invest in a race horse. I've never dealt with anything as odd as this. Since it's not an ERISA plan there wouldn't be any prudence issues, but what else do I need to consider? Would there be UBIT on winnings? How does this get reported on a 5500? I don't even know where to start!

[ETA Consulting LLC]

First, I'd do it in a DC plan. Let's say for argument purposes that the race horse wins the Triple Crown and goes on the win 100 races in a row. We're talking billions. We're also talking reversion of assets on plan termination due to the 415 limits on the amounts that can be paid out. You won't have that problem in a DC plan where only your contribution amounts are limited; not your payouts.

All assets must be valued at least annually. You have some prohibited transaction considerations. If I have a DC plan and uses the funds to purchase a horse, when I take my personal MasterCard and purchases horse feed, I just made a contribution to my plan. There's just too much potential for prohibited transactions.

I think they should do it, but it's not my call

Good Luck!