- The plan’s current status
- Plan contribution history
- Information on the rollover or direct transfer of the assets into the ROBS plan Participant information
- Stock valuation and stock purchases General information about the business itself
According to the IRS, here are some other areas a ROBS plan could run into trouble:
- After the ROBS plan sponsor purchases the new company’s employer stock with the rollover funds, the sponsor amends the plan to prevent other participants from purchasing stock.
- If the sponsor amends the plan to prevent other employees from participating, this may violate the Code qualification requirements.
- Promoter fees
- Valuation of assets
- Failure to issue a Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., when the assets are rolled over into the ROBS plan.
There are other risks, too ... A 2009 study by the IRS found that, although there were a few success stories, most ROBS businesses either failed or were on the road to failure with high rates of bankruptcy (business and personal), liens (business and personal), and corporate dissolutions by individual Secretaries of State. The IRS went on to say that some of the individuals who started ROBS plans lost not only the retirement assets they accumulated over many years, but also their dream of owning a business. As a result, much of the retirement savings invested in their unsuccessful ROBS plan was depleted or ‘lost,’ in many cases even before they had begun to offer their product or service to the public.
As you can see, a ROBS plan offers a pretty slick way to finance a new business with assets you normally couldn’t easily touch. But it’s filled with potential landmines. So make sure you hire an attorney and/or a CPA who is well experienced in ROBS to guide you along the way. Best wishes, George P.S. I’m now on Twitter. Follow me at http://twitter.com/efinancialwrite for frequent updates, personal insights and observations on how to have a healthy retirement.
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