withdrawal from IRA to invest in Franchise under age 59.5
I have a client who would like to invest in a franchise. He is under 59.5 he has an IRA rollover. The question can he withdrawal to invest in franchise and not pay 10% penalty? If he can were can I find were it is written!
Permalink Submitted by Joseph Arsenault on Wed, 2010-06-16 19:37
This would not qualify as an exception to the 10% penalty. Any taxable distribution from his IRA will be subject to the 10% tax.
Permalink Submitted by Ken L. Stone on Wed, 2010-06-16 21:42
Thanks for the reply. I think they are going to use a custom 401k type plan to do a rollover to it then gain access to the money and avoid the penalty. It’s a company out here that’s doing the paperwork and setting up the plan.
Permalink Submitted by mk foss on Wed, 2010-06-16 22:27
On October 1, 2008 IRS issued a memorandume to Directors of Employee Plans Examinations and Employee Plans Rulings and Agreements regarding ROBS “Rollovers as Business Start-ups” – which sounds suspiciously like the case here. The IRS is attacking these arrangements using prohibited transactions rules and also the valuations of the stock in the new business. The business model is that the business adopts an ESOP plan – then the related person rolls his/her IRA into it. At that point the plan has funds to purchase the stock from the business.
Be very careful.
Permalink Submitted by Alan Spross on Wed, 2010-06-16 22:32
Here is an article on ROBs including a link to the IRS Memorandum:
http://www.retirementdictionary.com/definitions/rolloversbusinessstartups
Permalink Submitted by Ken L. Stone on Thu, 2010-06-17 15:11
It’s funny how all these different schemes pop up. Thanks for the additional info—this company is going to charge my client over $5,000 plus a monthly maintence fee just to potentially get him into trouble. Thanks for the additional info. 😀