November 11, 2016 at 9:22 pm #59484
A Rollover for Business Startups (ROBS) can be a great way to fund a startup business. They are a way to use money in a 401k or IRA to fund your startup without paying early withdrawal penalties or taxes.
But what if you have a pension? Can you use a pension to do a ROBS?
We asked Guidant Financial and here’s what their legal team said:
The answer is “sometimes.” The key is that the pension must be an “eligible individual account plan” as defined in ERISA sec. 407(d)(3). That definition is as follows:
The term “eligible individual account plan” means an individual account plan which is (i) a profit-sharing, stock bonus, thrift, or savings plan; (ii) an employee stock ownership plan; or (iii) a money purchase plan which was in existence on September 2, 1974, and which on such date invested primarily in qualifying employer securities. Such term excludes an individual retirement account or annuity described in section 408 of title 26.
The term “pension plan” is really a generic, non-specific, non-legal term meaning different things to different people in different contexts. So the analysis is to determine (a) are the monies in the pension plan “rollable,” and if so (b) is the pension plan an eligible individual account plan (EIAP) within the definition quoted above.
So, if you are considering doing a ROBS in order to fund your startup but are uncertain whether or not your pension can be used for a ROBS, get in touch with Guidant and get an answer you can rely on.