ESOP for non-public company
I have a client who left her company and she is going to take a distribution from her ESOP plan. It is a privately held company. They are giving her the choices of a direct rollover or a cash out (less 20%). I was wondering if there is any way that this sell could qualfy for capital gains treatment?
She does need some of the money, so I was going to recommend a direct rollover and then take a distribution from the IRA and pay the 10% penalty and the tax as opposed to cashing out and having the 20% withheld.
Thanks.
Permalink Submitted by Alan Spross on Tue, 2009-06-09 20:14
It might qualify for NUA treatment if the distribution is part of a qualified LSD of all plans of the similar type of this employer. Before pursuing that, she should get a cost basis figure per share from the administrator. If she will not reach age 55 by the year of separation, an early withdrawal penalty will also apply to the cost basis, but not to the NUA portion.
Also, check the separate post “NUA on ESOP shares sold back to employer”, which may also contain pertinent information.
Permalink Submitted by BruceM on Wed, 2009-06-10 00:33
[quote=”[email protected]“]I have a client who left her company and she is going to take a distribution from her ESOP plan. It is a privately held company. They are giving her the choices of a direct rollover or a cash out (less 20%). I was wondering if there is any way that this sell could qualfy for capital gains treatment?
She does need some of the money, so I was going to recommend a direct rollover and then take a distribution from the IRA and pay the 10% penalty and the tax as opposed to cashing out and having the 20% withheld.
Thanks.[/quote]
In addition to Alan’s comments, you might want to make sure the LSD complies with the recent IRA Technical Advice Memorandum on this subject. (TAM 200841042). For a private ESOP distribution to a separated employee to qualify as a LSD to be eligible for NUA treatment, there is a certain proceedure that must be followed.
Here’s a web site that discusses this
http://www.morganlewis.com/pubs/EB_ESOPDistributionsTaxation_LF_17apr09.pdf
BruceM