I have a client who has been approached by a company that claims to have a legal way of allowing retirement funds to be used in creating liquidity for investing in a business. The client was told that they could form a C corporation, set up a 401k, roll their IRA into it and purchase shares of the business with the assets thereby creating liquidity for the business venture.

The company calls it a versatile entrepreneur retirement savings account plan. They said it is legal and takes the employee retirement income security act (ERISA) and the Internal revenue Code of 1986 (IRC) into consideration. My first reaction to this is that it wouldn’t stand up to the prohibited transactions clause.

Does anyone know the truth about this?

Thanks,
Chris