ESOP Dividends received outside of 401k

Submitted by Ira Fox on Mon, 2011-06-20 23:20

First time user/poster….

I have searched through the posts and wanted to clarify what I believe is true regarding someone receiving the dividends from their ESOP outside of their 401k. From what I gather, someone may elect to receive dividends (assuming the plan permits) outside of their 401k and this is excluded from the 10% early withdrawal penalty, right? Secondly, there is no special tax advantages for these dividends (as opposed to standard stock dividends) and they would simply be treated as earned income, correct?

I appreciate the time and expertise.

Sincerely,

Tony



Submitted by Alan Spross on Mon, 2011-06-20 23:46

Tony,
You are correct. The ESOP dividends are penalty free per 72(t)(2)(A)(vi). However, they are NOT considered qualified dividends and therefore are not eligible for the lower tax rate on qualified dividends including the -0- rate in the 15% or lower tax brackets.



Submitted by Ira Fox on Mon, 2011-06-20 23:54

Thank you for the quick response.



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