Required minimum distributions and ROBS

Required minimum distributions are not eligible rollover distributions. IRS rollover guidance says both IRA and retirement-plan distributions can generally be rolled over except for RMDs, among other excluded amounts.^[5] So if a source account owes an RMD for the year, that amount must be distributed to the participant before any remaining eligible balance is rolled to a ROBS plan. The RMD is personal distribution money, not plan-trust cash for buying C-corporation stock.

The same separation matters after the ROBS is operating. IRS describes a ROBS arrangement as retirement funds rolling into a plan that purchases stock of the new C corporation.^[8] The plan then owns employer stock. If the participant later owes an RMD from that plan, the plan administrator needs a current account value, a permitted distribution method, tax reporting and fiduciary review before moving cash or stock out of the plan.^[1][6][9]

IRS FAQs currently state that owners generally must begin RMDs from traditional IRAs, SEP IRAs, SIMPLE IRAs and retirement-plan accounts when they reach age 73.^[1] The statute is more precise: IRC 401(a)(9) defines the required beginning date as April 1 of the calendar year following the later of the year the employee reaches the applicable age or retires, but the retirement delay does not apply to a 5% owner. The same section sets the applicable age at 73 for people who attain age 72 after 2022 and age 73 before 2033, and at 75 for people who attain age 74 after 2032.^[4]

For a ROBS founder, the 5% owner question is often the practical hinge. A founder may work for the corporation and still own enough stock, directly or through attribution, to lose the workplace-plan delay. The plan document, ownership records and tax adviser should resolve that before the owner assumes an RMD can wait until retirement.^[1][4]

IRS FAQs distinguish account types. IRA owners calculate the RMD separately for each IRA but may withdraw the total IRA RMD from one or more IRAs. A similar aggregation rule applies to 403(b) contracts. RMDs from other retirement plans, including 401(k) and 457(b) plans, must be taken separately from each plan account.^[1]

That means a ROBS 401(k) RMD cannot be satisfied by taking a larger IRA distribution. It also means the ROBS plan’s private-company stock value is part of the plan-account calculation if that stock is in the participant’s account. The owner remains responsible for taking the correct amount even if a custodian, provider or administrator helps calculate it.^[1][3]

For a new ROBS transaction, sequencing is straightforward: identify whether the source account owes an RMD for the year, distribute that amount, then analyze the remaining balance for rollover eligibility and receiving-plan acceptance. IRS rollover guidance also distinguishes a direct rollover from a 60-day rollover and trustee-to-trustee IRA transfer.^[5]

Withholding can change the cash picture. IRS rollover guidance says a retirement-plan distribution paid to the participant is subject to mandatory 20% withholding even if the participant intends to roll it over later, while a direct rollover is not subject to that withholding. IRA distributions have different withholding rules.^[5] Because an RMD itself is not rollover-eligible, the source custodian or plan administrator has to treat the RMD as a distribution rather than burying it inside the rollover paperwork.

RMD math starts with the prior December 31 account balance divided by the applicable life-expectancy factor. IRS FAQs describe that method, and the IRS worksheet page points owners to the appropriate worksheet for their situation.^[1][3] A ROBS plan that owns private employer stock still needs a value for that stock. IRS ROBS materials identify stock valuation as an area examined in ROBS compliance checks.^[8]

If the plan has enough cash, paying an RMD in cash may be administratively simpler. If the plan is mostly employer stock, the choices are harder: the plan may need to sell assets, distribute employer stock in kind if the plan permits it, or consider whether the corporation can redeem shares. None of those choices should be treated as automatic. DOL fiduciary materials say fiduciaries must act prudently, diversify plan investments, document decisions, avoid prohibited transactions and, for employer-stock transactions with parties in interest, use fair market value with no sales commission.^[9]

An in-kind stock distribution does not avoid income tax. It is still a distribution of property that needs a defensible value, tax-basis review, withholding analysis and Form 1099-R reporting. The special net unrealized appreciation rules for employer securities may also need review, but they are not a shortcut for avoiding tax.^[6][7]

IRS FAQs state that RMD withdrawals are included in taxable income except for amounts already taxed as basis or amounts that can be received tax free, such as qualified designated Roth distributions.^[1] The 2026 Form 1099-R instructions cover gross distribution in box 1, taxable amount in box 2a, federal withholding in box 4, employer securities and other property, NUA in box 6, distribution codes and IRA fair-market-value reporting on Form 5498.^[6] Publication 505 adds withholding context for pensions, annuities, nonperiodic payments and eligible rollover distributions.^[7]

A missed or short RMD can create excise-tax exposure. IRS FAQs state that the excise tax may be 25%, reduced to 10% if timely corrected within two years, and that Form 5329 is used for the year the full RMD was required but not taken. The IRS also describes possible waiver relief when the shortfall was due to reasonable error and reasonable steps are being taken to remedy it.^[1]

Each example uses rounded dollars only where shown. The divisor is an assumption for illustration; a live account should use the correct IRS table for the owner and year.

An RMD does not make ROBS impossible, but it can reduce rollover capital or expose a liquidity problem. If the RMD reduces available startup funds below the amount the business needs, compare a smaller ROBS rollover with SBA financing, seller financing, conventional debt, additional personal cash, outside equity or delaying the transaction until the plan and valuation questions are settled.

For an existing ROBS plan with illiquid employer stock, alternatives include building cash inside the plan over time, coordinating a business sale, using a properly valued in-kind distribution, or evaluating a corporate redemption with advisers. The right path depends on plan terms, company solvency, other shareholders, employee participants, tax basis, fiduciary duties and whether the business can support the transaction without harming the plan.

Before moving money, gather the participant’s birth date, employment status, ownership percentage, plan document, source-account type, prior December 31 statement, current employer-stock valuation support, cash record, rollover paperwork, distribution approvals, withholding election or calculation, Form 1099-R support, Form 5498 support when relevant, corporate minutes for any redemption, fiduciary minutes and tax-basis records.^{[1][5][6][8][9]}

The next step is not simply asking whether a provider can process the transaction. Ask the plan administrator to calculate the RMD, the CPA to review tax and withholding, the valuation professional to support private-stock value, corporate counsel to review any redemption and the fiduciaries to document why the selected path is prudent for the plan.

These answers cover the recurring RMD questions that change rollover sequencing, plan distributions or ROBS exit planning. Each answer cites only the sources that support that point.

Sources were checked July 31, 2026. The source notes below explain what each source supports and what it does not decide for a live ROBS plan.

1. 1. IRS RMD FAQs

   Checked July 31, 2026. Used for the general age-73 explanation, workplace-plan still-working exception, 5% owner exception, plan-by-plan calculation, IRA and 403(b) aggregation, designated Roth owner-life rule, taxation and missed-RMD excise-tax guidance.

2. 2. IRS Publication 590-B

   Checked July 31, 2026. Used for IRS life-expectancy table context, IRA RMD concepts, basis language and Form 5329 correction context.

3. 3. IRS RMD worksheets

   Checked July 31, 2026. Used for the account-balance-divided-by-divisor calculation model and worksheet routing.

4. 4. OLRC IRC section 401(a)(9)

   Checked July 31, 2026. Used for the statutory required beginning date, applicable-age brackets, 5% owner exception and beneficiary definitions.

5. 5. IRS rollovers guidance

   Checked July 31, 2026. Used for direct rollovers, trustee-to-trustee transfers, 60-day rollovers, non-rollover treatment of RMDs and withholding distinctions.

6. 6. IRS Instructions for Forms 1099-R and 5498

   Checked July 31, 2026. Used for distribution reporting, box 1 gross distribution, box 2a taxable amount, box 4 withholding, employer securities and other property, NUA box 6 and IRA fair-market-value reporting.

7. 7. IRS Publication 505

   Checked July 31, 2026. Used for pension, annuity, nonperiodic-payment and eligible-rollover-distribution withholding context.

8. 8. IRS ROBS compliance project

   Checked July 31, 2026. Used for the ROBS structure, separation between the plan and corporation, IRS concerns about valuation, annual filings and Form 1099-R.

9. 9. DOL Meeting Your Fiduciary Responsibilities

   Checked July 31, 2026. Used for fiduciary prudence, documentation, diversification, prohibited transactions, parties in interest and employer-stock fair-market-value rules.