Major Changes Coming to “ROBS” in Reconciliation Bill

Bottom Line Up Front

  • A $3.5 trillion “Build Back Better” reconciliation bill is currently working its way through Congress
  • While various provisions within the bill target high-value IRAs and Mega-Roth IRAs, there are several key features that impact small business owners that are using an IRA as a funding vehicle
  • Owner’s of a non-public company would be restricted from holding certain investments in their IRA, such as those only available to “accredited investors”

Over the last 10 years or so, many middle & upper-middle-income taxpayers have used their IRAs or retirement funds to start or buy a business. These Rollover as Business Startups or ROBS have been the focus of an IRS compliance project but the key issue today is the Build Back Better Reconciliation or Budget bill working its way through Congress. While the bill has various provisions to target high-value IRA’s and Mega-Roth IRA’s, there are several key features that impact the small business owner using an IRA as a funding vehicle:

  • The bill would prohibit IRAs from holding investments only available to “accredited investors” and make that change retroactive where such investments would need to be removed from any existing IRAs within two (2) years.
    • While this sounds rather esoteric and would only apply to the very rich, this applies to almost all ROBS situations where a taxpayers has started or purchased a business that is not publicly traded and would need to disgorge those investments from their IRA within two years.
  • The bill would also prohibit an IRA from investing in any entity in which the IRA owner is also an officer.

“The bill would prohibit IRAs from holding investments only availabe to “accredited investors” and make that change retroactive where such investments would need to be removed from existing IRAs within two (2) years.

Parker Elmore

So, if you currently hold investments offered to accredited investors in your IRA we recommend you follow this bill closely as it may require quick action to comply and avoid the need for panic selling of your positions.

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