ROBS rollover eligibility

Eligible Retirement Funds for ROBS

Former-employer 401(k) and profit-sharing balances, pretax traditional IRAs, SEP IRAs, many 403(b)s, governmental 457(b)s, and TSP balances can fund a ROBS only when three conditions line up: the source account can distribute the money, the payment is an eligible rollover distribution, and the new qualified plan accepts that source and tax character.^[1]^[2]^[9]

Dennis Shirshikov • Reviewed August 6, 2026 • 16 minute read

The answer is account type plus administrable facts

Eligible assets move into a new qualified plan sponsored by a C corporation; that plan later purchases stock in the corporation.^[10] The rollover step is tax-deferred only if the money comes from a permitted source, moves as an eligible rollover, and is accepted by the receiving plan rather than paid out as a personal withdrawal. The IRS describes direct rollovers, trustee-to-trustee transfers, 60-day rollovers, excluded distributions, and the fact that a retirement plan is not required to accept incoming rollover contributions.^[1]

Four definitions prevent most eligibility mistakes. The source account is the account distributing money. The distribution event is the plan-permitted reason money can leave. The eligible rollover distribution is the payment category that can move tax-deferred. The receiving plan is the new qualified plan that must be allowed, under its own document, to accept the incoming source and keep the required tax-character records.^[4]^[9]

Two administrators make different decisions

The distributing administrator decides whether the account can pay out and how the distribution is coded. The receiving administrator decides whether the rollover contribution is acceptable. A provider’s comfort with ROBS does not override either plan document.

Account-by-account eligibility

Use this table as a starting map, not a final approval. Each account still needs source documents, distribution paperwork, tax-character records, and receiving-plan acceptance.^[1]^[2]^[9]

Source account

ROBS answer

What must be verified

Former-employer 401(k), profit-sharing, money-purchase, or defined benefit plan

Usable only after a distributable event and receiving-plan acceptance

The source plan must permit a distribution, the payment must be an eligible rollover distribution, and the new qualified plan must accept the source and tax character. Pension and money-purchase plans need administrator election paperwork and any required annuity or spouse-consent handling.^[1]^[2]^[4]

Current-employer 401(k) or 403(b)

Usable only if the plan permits an eligible in-service distribution

Federal rules allow plans to pay after severance and may allow certain in-service events such as age 59½, but the plan document controls. A hardship distribution is not rollover-eligible even when hardship access is available.^[3]^[4]

Traditional IRA

Usable when the receiving plan accepts the IRA rollover and tax character

A traditional IRA can roll to a qualified plan, but nondeductible basis must be identified because a receiving plan may reject after-tax IRA amounts or require separate accounting support.^[2]^[5]^[9]

SEP IRA

Usable when the receiving plan accepts the SEP IRA rollover and tax character

SEP assets are IRA assets for rollover purposes. Confirm the custodian, pretax character, any basis, and whether the receiving plan document accepts the incoming IRA rollover.^[2]^[5]^[9]

SIMPLE IRA

Usable only after the two-year SIMPLE IRA participation rule is satisfied

A SIMPLE IRA can roll to a qualified plan only after the SIMPLE IRA two-year participation period. Before then, a taxable distribution may also face the higher SIMPLE IRA additional tax rules.^[2]^[5]

403(b)

Usable only after an eligible distribution and receiving-plan acceptance

A 403(b) distribution can be rolled to a qualified plan when the payment type is eligible. Confirm severance, age-based access, contract restrictions, Roth sources, and any nonqualifying distribution category.^[2]^[6]^[9]

Governmental 457(b)

Usable only after an eligible governmental-plan distribution

Governmental 457(b) plans may roll to qualified plans. Verify governmental sponsor status because tax-exempt 457(b) plans follow a different rule.^[2]^[7]

Tax-exempt organization 457(b)

Not a ROBS rollover source

The IRS comparison says tax-exempt 457(b) plans cannot roll to other eligible retirement plans. Confirm the employer classification before relying on a 457(b) balance.^[7]

Thrift Savings Plan

Usable when the TSP balance is distributable and destination rules are met

Traditional TSP amounts can follow qualified-plan rollover paths. Roth TSP amounts have Roth destination limits, and civil-service annuity benefits are separate from TSP rollover assets.^[2]^[8]

Roth IRA

Not usable for a ROBS qualified-plan rollover

The IRS rollover chart does not permit Roth IRA money to roll into a qualified plan. A Roth IRA may be a personal funding alternative only through a taxable or penalty-sensitive withdrawal analysis, not a ROBS rollover.^[2]^[5]

Designated Roth 401(k), 403(b), governmental 457(b), or Roth TSP

Usable only to a compatible designated Roth destination

Designated Roth money does not become ordinary pretax ROBS capital. The receiving plan would need a designated Roth account that accepts the permitted rollover, and many ROBS plans are designed around pretax employer-stock purchases.^[2]^[8]^[9]

Inherited accounts

Usable only through the beneficiary rollover path that applies

A spouse beneficiary may have rollover paths that a nonspouse beneficiary does not. Do not count inherited assets until the beneficiary status, account type, and permitted destination are confirmed in writing.^[5]^[8]

Pretax, Roth, and after-tax character do not travel the same way

Pretax assets are the usual ROBS funding source because they can move from a traditional IRA, qualified plan, 403(b), governmental 457(b), SEP IRA, eligible SIMPLE IRA, or TSP traditional balance into a qualified plan that accepts them. Roth IRA assets cannot roll into a qualified plan. Designated Roth money from a 401(k), 403(b), governmental 457(b), or Roth TSP has a narrower destination path and must be kept in compatible Roth accounting if accepted.^[2]^[8]

Non-Roth after-tax employee contributions require a separate ledger because the taxable and nontaxable portions must be separately accounted for in a direct rollover to a qualified plan or 403(b). Traditional IRA basis is different: Form 8606 and IRA records identify nondeductible contributions, and the receiving plan may reject those amounts. For a deeper basis discussion, see the after-tax retirement contributions guide.^[3]^[5]

Payments that stop an otherwise eligible account from qualifying

An eligible source can issue an ineligible payment. The exclusion attaches to the distribution category, not just to the account label.^[1]^[3]

Required minimum distributions

The required amount for the year must be paid out before the remaining eligible balance is evaluated for rollover.

Hardship distributions

Hardship access may solve a personal cash need, but it does not create tax-free rollover capital for a ROBS transaction.

Long periodic payment streams

Payments over life expectancy, joint life expectancy, or a period of 10 years or more are excluded from rollover treatment.

Corrective distributions

Returned excess contributions, excess deferrals, excess annual additions, and allocable earnings cannot be rolled over.

Loan amounts treated as distributions

A deemed distribution from a defaulted plan loan is not eligible. A plan loan offset can have different timing rules, so existing loans need separate review in the existing 401(k) loans guide. See the existing 401(k) loans and ROBS eligibility guide for source-plan loan handling.

Employer-security dividends, insurance costs, and similar exclusions

These statutory exclusions are not converted into eligible ROBS capital by moving them near an otherwise eligible account.

Money movement, custody, and timing

A direct rollover reduces withholding, custody, and timing risk in a ROBS rollover. The distributing plan administrator can make a plan distribution payable to the receiving retirement plan, and IRA assets can move trustee-to-trustee. When the payment is not paid to the individual, mandatory employer-plan withholding does not apply and the receiving administrator does not need to police a 60-day deadline for funds the individual never received.^[1]^[9]

An indirect rollover adds timing and cash risk. If a taxable eligible rollover distribution from an employer plan is paid to the participant, the payer generally withholds 20%. To roll over the full amount, the participant must replace the withheld dollars from other funds within the allowed period. IRS Topic 413 also notes extended timing for qualified plan loan offset amounts, which is why loan offsets should not be lumped together with defaulted deemed distributions.^[1]^[3]

Records to keep before the stock purchase

Keep the distribution notice, election forms, source statement, tax-character breakdown, direct-rollover instructions, deposit proof, and Form 1099-R. The ROBS plan is a real qualified plan with continuing recordkeeping, valuation, employee, and filing obligations.^[10]

Verification file before accepting a rollover

The receiving administrator should take reasonable steps to evaluate the rollover. These are the records that make the eligibility answer reproducible.^[9]

Exact legal name of the distributing plan, IRA, or TSP account

Sponsor type: former employer, current employer, governmental employer, tax-exempt employer, IRA custodian, or TSP

Distribution event: severance, permitted in-service event, IRA withdrawal, plan termination, pension election, or other stated event

Payment type: eligible rollover distribution, RMD, hardship, periodic payment, corrective distribution, deemed loan distribution, loan offset, or other category

Tax character: pretax, designated Roth, non-Roth after-tax, Roth IRA, IRA basis, earnings, or mixed sources

Receiving plan terms showing whether each source and tax character is accepted

Trustee, payee, check, wire, and deposit instructions for a direct rollover

Source statements, distribution election forms, tax notice, Form 1099-R, and receiving-plan accounting records

Worked examples with the arithmetic exposed

These examples are not recommendations. They show how the eligibility rules change the amount that can actually move into the receiving plan.

Example 1

Former-employer 401(k) with mixed sources

Jordan has $182,000 in a former-employer 401(k): $126,000 pretax deferrals, $31,000 employer match, $20,000 designated Roth, and a $5,000 RMD for the year. If the receiving ROBS plan accepts only pretax money, eligible pretax capital is $126,000 + $31,000 - $5,000 = $152,000. The $20,000 designated Roth balance needs a compatible Roth destination and is not counted in that pretax employer-stock funding amount.^[1]^[2]

Example 2

Indirect rollover withholding shortfall

Maya requests a $120,000 eligible distribution from an old 401(k) payable to herself. Mandatory 20% withholding is $24,000, so she receives $96,000. If she rolls over only $96,000, the unrolled $24,000 is taxable and may face the early-distribution additional tax. To roll over the full $120,000, she must contribute the $96,000 received plus $24,000 from other cash within the rollover period.^[1]^[3]

Example 3

Current employer with no distributable event

Elena is 47 and has $260,000 in her current 401(k). The summary plan description allows hardship withdrawals but no in-service rollover source before age 59½. Her available ROBS capital from that plan is $0 because the only available payment is not an eligible rollover distribution. If she later separates from service and the plan permits a lump-sum eligible rollover, the calculation changes.^[3]^[4]

Failure modes, risks, and alternatives

Eligibility is not suitability. The IRS ROBS project describes real examination concerns: failed businesses, missing Form 5500 or corporate returns, promoter fees, valuation problems, discriminatory plan operation, and missing Form 1099-R reporting. A technically eligible rollover can still concentrate retirement assets in one private company and create ongoing plan duties for the owner and corporation.^[10]

Common failure modes include counting a current-employer balance before a distributable event exists, trying to roll a hardship payment, ignoring an RMD, mixing Roth IRA money with qualified-plan Roth money, losing the basis trail for after-tax amounts, requesting a check payable to the individual without replacement cash for withholding, or assuming the receiving plan must accept a rollover because the source plan issued a check.^[1]^[2]^[9]

If the eligibility file is weak, consider waiting for a severance or age-based event, using only the accounts that clearly qualify, combining ROBS with an SBA loan or seller note, using taxable personal savings, evaluating a smaller business purchase, or declining the transaction until an ERISA attorney, CPA, plan administrator, and business adviser can review the facts.

Next steps before a ROBS setup

The next decision is not whether the account name appears on a list; it is whether documents, administrators, tax character, and business financing assumptions all support the rollover.

1. Build the source-account file

Collect statements, plan documents, distribution rules, SIMPLE IRA dates, basis records, Roth source records, loan information, and RMD status before treating a balance as available.

2. Ask both administrators

Ask the source administrator what can be distributed and ask the receiving administrator what the plan accepts. Get payee and wire instructions before requesting movement.

3. Model alternatives

Compare ROBS capital against debt service, taxes, penalties, provider fees, retirement concentration, working-capital needs, and exit consequences before choosing a structure.

Frequently asked questions

These answers clarify the terms and decision points that determine whether a retirement balance can actually be used for a ROBS rollover.

What is the source account?

The source account is the plan, IRA, or TSP account from which retirement assets would leave. Its administrator or custodian decides whether the account can distribute money now and what tax codes apply to the distribution.^[1]

What is a distribution event?

A distribution event is the plan-permitted reason money can leave an employer plan, such as severance from employment, age 59½ if the plan offers in-service access, plan termination, or another event written into the plan.^[4]

What is an eligible rollover distribution?

It is a retirement-plan payment that can be rolled to another eligible retirement plan or IRA. The phrase excludes RMDs, hardship distributions, many periodic payments, corrective distributions, and several other categories.^[1]

What is the receiving plan?

In a ROBS transaction, the receiving plan is the new qualified retirement plan sponsored by the C corporation. Its administrator determines whether the plan document accepts the incoming rollover source and tax character.^[9]

Who holds the money during a direct rollover?

The distributing trustee or custodian sends the payment to the receiving plan trustee or custodian by check, wire, or another custodian-supported method. The individual should not take personal custody if the goal is to avoid withholding and 60-day timing risk.^[1]

Can a provider promise that an account qualifies?

A provider can help read documents and administer the receiving plan, but the distributing administrator controls distribution availability and the receiving administrator must make a reasonable acceptance decision. Individual legal, tax, and fiduciary questions belong with qualified professionals.^[9]

Primary sources

These IRS sources establish rollover paths, excluded distributions, plan distribution events, IRA and 403(b) details, governmental 457(b) treatment, TSP context, rollover verification, and ROBS examination risks. They do not decide any reader’s individual legal, tax, fiduciary, or investment result.