Another 401K question

[DaveO]

We just had an interview with prospective new clients. They are starting a business using a "C" Corp. They claim that one of the shareholders has rolled an IRA into the new corporations 401K plan. The shareholder intends to borrow money from the 401K and loan it to the business for the startup.

I can't find anything in the code that allows this. I see where you can roll an IRA into certain 403 plans but not a 401K. Has anyone heard of this before?

[Bees Knees]

TTB, page 13-21 under kinds of rollovers: "Rollover from an employer's qualified retirement plan [such as a 401(k) plan] to a traditional IRA, and vice versa."

This statement is supported by IRC Section 402(c). Although the code does not specifically mention IRAs and 401(k)s, the term "eligible rollover distribution" used in Section 402 and 408 apply to both.

The conference committee report for
H.R. 107-84: ECONOMIC GROWTH AND TAX RELIEF RECONCILIATION ACT OF
2001 CONFERENCE REPORT (Pension and Individual Retirement Arrangements) says the following concerning this”

“The House bill provides that eligible rollover distributions from qualified retirement plans, section 403(b) annuities, and governmental section 457 plans generally could be rolled over to any of such plans or arrangements. <<104>> Similarly, distributions from an IRA generally are permitted to be rolled over into a qualified plan, section 403(b) annuity, or governmental section 457 plan. The direct rollover and withholding rules are extended to distributions from a governmental section 457 plan, and such plans are required to provide the written notification regarding eligible rollover distributions.”

The conference agreement followed the House bill. Note that the term "qualified plan" can refer to a 401(k) plan.