Relief Denied for Exemption to use Personal Accounts to cover Plan Margin and Option Accounts

Solo-k Plan

Prohibited Transaction Exemption (PTE) 80-26 refers to certain transactions involving individual retirement accounts (IRAs) described in section 4975(e)(1) of the Internal Revenue Code of 1986, as amended (the Code).1

The request relates, in part, to an Advisory Opinion the Department issued on October 27, 2009 (Advisory Opinion 2009-03). That Advisory Opinion concerns whether it would be a prohibited transaction in violation of Code section 4975(c)(1)(B) for an individual to grant a brokerage firm (a Broker) a security interest in the assets of the individual’s non-IRA accounts with the Broker as a requirement for the individual’s establishment of an IRA with the Broker. Advisory Opinion 2009-03 sets forth the Department’s view that, with respect to the arrangement described above, the grant by an individual to a Broker of a security interest in the individual’s non-IRA accounts in order to cover indebtedness of, or arising from, the individual’s IRA with the Broker, would be an impermissible “extension of credit,” as described in section 4975(c)(1)(B) of the Code

An Indemnification Agreement is a condition precedent for an IRA to:

(1) establish an Account with a Broker; and

(2) invest in a futures contract through the Account. In our view, an Indemnification Agreement that is required in order for an IRA to engage in futures trading is not “incidental” within the meaning of condition (b)(2) of PTE 80-26.

In light of the above, it is the view of the Department that relief under PTE 80-26 is not

available with respect to the arrangement described in your request.