Hal Mottet, a Lake Oswego, Ore., businessman, bought a family-owned packaging company for $3.5 million in late 2007, and he and a partner financed 40 percent of the sales price with their retirement money.

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NEW YORK — Hal Mottet, a Lake Oswego, Ore., businessman, bought a family-owned packaging company for $3.5 million in late 2007, and he and a partner financed 40 percent of the sales price with their retirement money.

Mottet and his partner used a loophole in federal tax law to roll over $1.4 million from their existing 401(k) retirement plans to finance the purchase of Empire Container Corp. The strategy saved them taxes and penalties they would have faced for cashing out the plans.

“If we hadn’t done it this way, we would have had at least $1 million more debt, and we wouldn’t have made it through the recession,” said Mottet, 51, who’s now chief executive of the firm. Transactions like Mottet’s let entrepreneurs access their retirement funds without tax consequences. Withdrawals from 401(k)s are generally subject to income taxes on the proceeds, and cashouts done before age 59 ½ incur a 10 percent penalty, according to the Internal Revenue Service.

Here’s how it typically works: An investor sets up a corporation, establishes a new 401(k) plan there, rolls over his or her existing 401(k) or Individual Retirement Account, and then uses part or all of the plan’s assets to buy shares of the new company. This funds the new business, while keeping the tax-advantages of the retirement plan.

The transactions have drawn the scrutiny of the IRS, which dubbed them ROBS, for Rollovers as Business Startups, and said in an October 2008 memo that some may run afoul of the law. The IRS is coordinating efforts with the Labor Department because these rollovers may also raise issues under the rules that govern retirement plans, according to the memo.

“Like many other recently marketed tax-savings strategies that appear to have been designed to take advantage of the law, ROBS arrangements, designed to fit within existing law and guidance, do not present a ‘home free’ result,” the IRS said in a November 2008 newsletter. “In fact, they may violate the law.”

Among the issues the IRS found were prohibited transactions, questionable valuations of the company stock, and a failure for the rollover retirement plans to be available to employees other than the principal owner. In a few cases the IRS reviewed, retirement funds were used to purchase personal assets, like recreational vehicles, according to the memo.

Monika Templeman, acting director of employee plans for the IRS, said the agency would be reviewing these rollover transactions, and auditing them on a case-by-case basis over the next few years.

The credit crisis has made the 401(k) rollovers more attractive for small-business financing. The Federal Reserve Board said in its April survey of senior loan officers that credit to businesses would “likely remain quite stringent following the prolonged and widespread tightening that took place over the past few years.”