The Challenges of Using Rollovers to Start a Business

Versions of qualified plans, sometimes referred to as "Rollovers as Business Startups" or simply "ROBS," are marketed with increasing frequency to would-be business owners as a way to access tax-deferred retirement funds without paying distribution taxes, in order to cover new business start-up or acquisition costs.

The promoters of ROBS products, often soup-to-nuts service providers working for a fee, market the ROBS concept as a safe alternative to traditional financing options. Many market ROBS transactions by heralding generic archetypes which have been pre-approved by the Internal Revenue Service ("IRS") as proof positive of the safety of the ROBS concept. However, while the IRS has indeed issued favorable determination letters to many providers, prospective business owners should be cognizant of the many operational pitfalls that follow the use of the ROBS concept, many of which are fact intensive to each specific transaction, as well as many common hurdles the ROBs concept present to consummating business acquisitions.

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In a recently released advisory by business and nonprofit organizations attorney Benjamin L. Rackliffe, he explains how the ROBS concept works and provides details about the requirements for passing IRS scrutiny. To read the essay, please click The Pitfalls of ROBS Transactions. To learn more about this issue or other business matters, contact Attorney Rackliffe at 401-824-5100 or email brackliffe@pldolaw.com. We welcome your comments, questions and suggestions.

Versions of qualified plans, sometimes referred to as "Rollovers as Business Startups" or simply "ROBS," are marketed with increasing frequency to would-be business owners as a way to access tax-deferred retirement funds without paying distribution taxes, in order to cover new business start-up or acquisition costs. 

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