ROBS Basics Flashcards
ROBS - What is it?
Using retirement assets to purchase a business while keeping them tax deferred
Prohibited Transaction
The use of retirement funds for purposes that don’t meet the criteria set forth by the IRS
Typically causes a taxable event
Why C-Corp
C-Corps allow non-person entity (401K) to have ownership of the corporation
Plan Sponsor
The employer that establishes the plan
Fiduciary
Exercises any discretionary authority or control over the plans management or disposition of assets
Authority/responsibility over plan
Plan Administrator
Manages the day to day activities of the plan
Hiring, eligibility, ruling on claims
Trustee
Hold legal title to the plan’s assets to safeguard the investment
Custodian
Possession of plan assets but lacks authority
Fidelity Bond
A form of specialized insurance aimed at preventing certain losses to retirement plans
Roll
Move one retirement account into another
Qualified
Means that it was in a retirement account
Securities
Means STOCK
ROBS Compliance
What are the 5 major requirements?
1) Client’s Fiduciary Requirement/Responsibility
2) Adequate Consideration
3) “Operating Company”
4) Nondiscrimination Against NHCEs (non-highly compensated employees)
5) Bona-fide Employees
Client Fiduciary Requirements
Fiduciary = highest level of duty
Duty of prudent investment = has to be prudent decision
Adequate Consideration
Plan can not pay more than Fair Market Value for the plan for stock
Can pay less than FMV just NOT more
Fair Market Value
Requirements to be considered FMV?
Willing buyer and seller
Both have knowledge of material facts
Neither is under compulsion to buy or sell
Arms Length Transaction
Operating Company
Active Trade or Business actively conducting sales of a product or service
Subsidiary
A company controlled by a holding company
Non-Discrimination Against NHCEs (non-highly compensated EEs)
Compares Non-highly compensated EEs vs Highly compensated EEs
Benefits, Rights and Features must be the SAME for highly vs. non-highly
Bona-Fide Employees
Must be active, bona-fide employees
NO silent investors
401 (k) Adoption Agreement
What is it?
Adoption Agreement or AA is the governing document for the 401(k) plan
Fidelity Bond
Bond amount requirements?
Bond amount equal to 10 percent of plan assets, or $500,000, whichever is less
Operating Company
Exceptions that are not allowed?
The investment of capital
factoring, investment advisors, venture capital firms, day trader
Operating Company
IRS Red Flag Activities?
Could be a hobby or a business - Farming, horse breeding, car racing
Non-Discrimination Against NHCEs (non-highly compensated EEs)
What is the reason for rules?
Highly compensated EEs don’t need Govt protection
What is a Highly Compensated Employee?
Owns 5% or more of the company comp test (around 120K)
401(k) Adoption Agreement
What is included?
Information on how the plan should be operated
Elections regarding eligibility, matching, vesting, loans, withdrawals, retirment age and more
Is Guidant a fiduciary?
Guidant does not act in a fiduciary capacity for any of our customers
We take info. provided to us & make sure the plan remains compliant
