ESOP partial distribution qualification for NUA
I have retired from my company and have an employee stock ownership plan. As of yet I have not taken any distribution of the stock, and want to make sure I process the transaction as beneficial as possible. The plan only allows an employee to recieve 20% of the stock per year spreading the cash flow out over five years. Being that the NUA rules apply to a lump sum distribution does this mean that only the first year distribution would qualify for NUA, and all other distributions would be taxed fully or, must be transfered to a IRA.
Permalink Submitted by mk foss on Wed, 2011-01-12 18:01
I would think that only the LAST distribution would qualify for NUA and that might be iffy.
One of the definitions of lump sum distributions is that the entire balance in the plan be paid out in one calendar year. That makes the first distribution ineligible.
The lump sum distribution has to be payable based upon a triggering event such as separation from service, death, disability or attaining age 59-1/2. The triggering event occurs with the first distibution.
Is it possible to defer all of the stock until the 5th year to qualify as a lump sum?
Perhaps someone has a real life experience that made this work with a plan like yours.