Available Investments for Your ROBS 401K Plan | Frank Selden Law

Available Investments for Your ROBS 401K Plan

Does your ROBS plan allow alternative 401K investments? A new client came to with an existing ROBS plan created by one of the big promoters. He wants to invest funds from his plan into a privately held LLC. The promoter told him he could not make that investment. That investment is allowed if one follows the rules. Could your plan include alternative 401k investments? Yes. Many plans are written for the convenience of the company offering the plan rather than based on the rules and what the client wants.

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Alternative 401(k) Investments

A 401K plan is not allowed to invest in life insurance contracts, collectibles, entities that are disqualified persons (other than the parent company under the qualified employee securities exemption).

The issue many ROBS clients will discover, however, is that the generic plans created for them by the ROBS promoters do not allow for alternative 401K investments. The client mentioned above found an LLC which appealed to him as an investment opportunity for his plan. He was told by his plan record-keeper that he could not make that investment. True, under the plan as they designed it. They did not tell them whether a plan may make that investment, just that he could not. Then he found me.

His plan is now with a third party administrator who amended his plan and is handling most of the paperwork. I am helping with some board resolutions and stock ledger update. Easy - not necessarily simple.

We can create your ROBS 401K plan in a way that allows cryptocurrency, private equities, and certain types of real estate. 

Prohibited Transactions

When a plan invests into the sponsoring corporation, that corporation is not under any restriction from what it may or may not do with those funds. The corp just follows generally accepted accounting principles and the tax code. The corporation’s use of the plan’s money will reflect in the stock price which is the plan assets. The corporation may buy life insurance for executives, for example, something prohibited for the plan to do directly.

The Corporation may invest in an LLC for which the client is the manager. The plan may not. Before amending his plan, the client and I discussed his involvement with the target LLC. He is not a member, manager, or employee of the target LLC. Excellent. Not a prohibited transaction issue.

Mutual Funds, ETFs and Actively Managed Funds

All of our ROBS clients receive a custom plan design session during which you help create the plan that will best support the company you envision. You can turn on families of mutual funds you are comfortable making available to employees; Fidelity, Vanguard, American, 0ver 60,000 funds to choose from. The plan can also add ETFs and actively managed money for higher balance plans. You are not stuck with a plan that only offers stock in your company. Your company stock offering, by the way, is allowed to close after a reasonable period of time.

Bottom Line

If the basic plan offered by most ROBS promoters doesn't appeal to you, download our e-book or schedule a consult directly with me. You have more options.

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