RMD for QES / ROBS Only Plan - Required Minimum Distribution

When the retirement plan is fully or largely invested in QES/ROBs and there are not other/enough assets in the retirement plan to take a required minimum distribution ("RMD"), there may be additional steps required for the RMD to be processed for an actively employed owner/employee.  

The need to take an RMD would first depend on the amount of direct (individual) ownership of the company that the active owner/employee has at the time the RMD is due. 

• 5% or less direct ownership: the RMD can be deferred until after the owner/employee separates from service with the company.
• More than 5% direct ownership: the QES would have to be liquidated, pursuant to a current valuation, so that the RMD(s) can be made. The company would redeem enough stock to complete the RMD (or several RMDs, if planning for future years).
• Alternatives for Consideration: It may be beneficial to discuss the RMD funding method with your tax, financial, and/or legal counsel, if the desire is to not have to redeem shares to fund the RMD. A few alternative approaches are listed below: 
  • Have the active owner/employee make new deferral contributions or have the company make a discretionary employer contribution sufficient to cover the RMD amount. Note in this method, the plan must allow for new contributions and the annual non-discrimination compliance testing would apply.
  • Take an in-kind distribution of the QES shares. In this method, the active owner/employee would work with their attorney to update the stock ledger/certificates and other related documents. Note: The company, owner/employe, and lawyer would work with LRS to amend the related plan documents (if needed) and for processing the transfer transactions. 
  • Pay a corporate dividend, which for the ROBS stock would be a post-tax payment made in cash and no valuation is required. In this scenario, the corporation would declare the dividend in a written corporate action and deposit the cash payment to the custodial account in the name of the plan. The dividend payment is not a contribution, but earnings on the stock investment. For additional reference on this example, please check out this blog post on ROBS dividends. 
    • The Advantages and Tax Effects of Dividends Paid to the ROBS Plan Account – KLB Benefits Law Group (klblawgroup.com)