Investing 401k in Your Own Business – Form 5500 Requirement

In its 2010 guidance, the IRS reported common ROBS operational mistakes made by new business owners using their retirement funds to pay business start-up costs (see here). The IRS noted a common misunderstanding that a Form 5500 is not required to be filed if the business is only owned by an individual and his or her spouse. In the referenced guidance, the IRS made clear that Form 5500 is required in all cases.

To learn more about investing 401k in business startups generally, please visit this page.

Items Reported on Form 5500 QUESTION

What types of tax items are reported and tracked on the 5500 filed for the ROBS 401k?  Is the 5500 informational only in nature or are there tax consequences as a result of the filing? Does depreciation have an impact on the Form 5500?

ANSWER:

The 5500 is Informational only.
 The value of the 401k funded C corporation is reflected indirectly in that the value of the stock held in the 401(k) is listed on the Form 5500. To the extent the depreciation impacts the value of the business, it would have an indirect effect.

 

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