I have a question regarding the 401k business financing plan.
Assume:
- I roll my IRA into my new C Corp's 401k plan. NOTE: If your IRA is a Roth IRA you are not eligible to roll it over.
- The 401k plan uses the funds to purchase my new C Corp's stock.
- After some period of time, the company becomes profitable.
Q: Can the C Corp buyback its stock from the 401k plan?
ANSWER: Yes provided that it buys the stock back at fair market value as of the time of the buyback.
Q: If so, will it be possible for me to exit the 401k plan at some point and roll the funds back into a rollover IRA without leaving the C Corp's employment?
ANSWER: Technically yes. However, the best practice is for the corporation to continue to maintain the 401k plan after the buyback and as long as the corporation continues to be in business. Winding down the 401k after the buyback could be challenged as a violation of the permanency requirement.
Thanks,
L. Boutwell in Irvine California
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