ESOP
I have a few questions about ESOP plans.
I have a client who owns a company and is getting into the retirement stage. He is wanting to sell off his company stock back to the employees/company.
I had a long discussion with Mr. Bob Pompei on Tuesday, the 17th. He will have a least 1.2 million from the ESOP no later then Sept 1st. That amount is 30% of the shares. He and his wife Shirley still own a percentage of that 30% . An additional $600,000 will be forthcoming before the end of 2008.
❓
He told me that he cannot put the money into banks or mutual funds without paying capital gains tax.
❓
At this time, he has elected to go into the stock market. He was going to interview some different brokers to determine who he wanted to do business with.
Before 5 years this total account would be between $5 and $6 million.
Questions:
1. How does/can he avoid capital gains tax on the company ESOP stock?
2. Why do Bank CDs and Mutual Funds spark a Capital gain and Stocks do not?
3. Where can I go to find answers to ESOP questions?
4. Please provide some insite on Section 1042 exchange.
5. Where can I find details on this Section 1042?
6. What is the advantage to the section 1042 exchange VS IRA rollover?
Thank You for your help!
Permalink Submitted by BruceM on Thu, 2008-07-03 05:30
I don’t pretend to be an ESOP expert, but let me offer this.
Section 1024 deals with the sale of company stock by shareholder(s), to the company’s ESOP, a qualified retirement plan. The company must be a privately held C-Corp. and the total of the transfer must be at least 30% of the outstanding stock. Within one year of the transfer, the transferor may avoid capital gains on the transfer by aquiring qualified replacement securities that the transferor must hold for at least 3 years. The QRS’s must be from a domestic, publicly traded C-corp that is not a control group with the transferor’s company, generates