Direct Rollover of ESOP shares accumulated prior to marriage into New Rollover IRA

Submitted by Richard Delaney on Mon, 2023-03-13 17:38

I was employed by a company in the 1980’s and 1990’s that issued me shares in an ESOP plan. I married in 2012 and live in a community property state, Texas, but was always confident the shares are separate property since acquired > 20 years prior to marriage. I plan to perform a direct roll-over into a roll-over IRA in a couple of weeks. I started worrying that since the IRA will be new and funded (with stock shares) during the marriage if I am at risk of this becoming community property. Any help you can provide would be appreciated so I can quit worrying.

Thank you,
Richard



Submitted by Alan - IRA critic on Mon, 2023-03-13 23:35

Just keep records of your final plan statement dated well prior to marriage, and do not roll it into an existing IRA that might contain assets acquired after the marriage. Did you consider NUA for these shares instead of an IRA rollover, and if so do you qualify for an LSD after a triggering event (separation from service or reaching 59.5) and this would be your first distribution since?

Submitted by Richard Delaney on Tue, 2023-03-14 15:50

I was concerned an NUA would be disallowed since the Shares were given to me and not purchased by me. Is there still a cost basis considered?       The company was private when the shares were given to me over a period of 8 years and I have the value established by an independent appraisal firm (Houlihan, Lokey, Howard & Zukin, Inc.)  at the time of each share award to me. The company went public 3 years ago and I have the value at time of IPO (shares were split 3 for 1).   If NUA were possible which would be the cost basis?

Submitted by Alan - IRA critic on Tue, 2023-03-14 16:00

You would need to get the cost basis from the plan. The IRS will be guided by the 1099R issued to report the share distribution. That 1099R would show the taxable cost basis in Box 2a and the amount of NUA in Box 6. In addition the total distribution box would need to be checked. The 1099R would not be compliant unless you qualified, and you should get a cost basis quote from the plan before deciding to utilize NUA or not. Generally, a cost basis of over 30% of the current share value would result in NUA not being beneficial compared to an IRA rollover. Note that the cost basis is the price paid for the shares when added to your ESOP account regardless of who paid for those shares.

Submitted by Richard Delaney on Tue, 2023-03-14 16:27

I appreciate your responses and exceptional knowledge of these subjects.

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