Personal Finance & Money Stack Exchange is a question and answer site for people who want to be financially literate. It only takes a minute to sign up.
Sign up to join this community
Regarding US retirement accounts like a 401k or IRA, can a corporation (or any entity) get around employee contribution limits by contributing a class of shares that have a certain value but get massive one time dividends at the end of a year? (or in some other way become a lot more valuable)
I feel like Bain Capital did something like this, but I never looked into it since it wasn't relevant to me.
The fair price of a stock is the present value of its future payments. That means the stock you have described would have a "fair" value that is quite high and you wouldn't be able to put much of it in your 401(k) or IRA. The IRS requires that "fair value" be used for calculating the value of IRA and 401(k) assets.
Of course, if the stock is not publicly traded, then there's not an obvious price for it. I'm sure in the past people have said they spent a small amount of money for assets that are actually worth much more in order to get around IRS limits. This is illegal. The IRS can and sometimes will prosecute people for this.
In order to address abuses of the system by inclusion of hard to value assets in retirement accounts, the IRS has additional reporting requirements for these assets (nonpublic stock, partnerships, real estate, unusual options, etc.) and those reporting requirements became more stringent in 2015. In other words, they are trying to clamp down on it.
There are also likely problems with prohibitions against "self-dealing" involved here, depending on the specifics of the situation you are describing.
