ESOP Diversification
I want to take advantage of a opportunity to diversify 25% of my ESOP. This is a private company and the entire account is in the form of company stock. In the future I want to take advantage of the NUA tax treatment when I retire. My question is how will or if the distribution of the 25% now effects the cost basis of the stock remaining in the ESOP? Information I have from my retirement department lists a average cost basis that is @ 16% of the current value of the stock.
Permalink Submitted by Alan - IRA critic on Fri, 2015-03-06 16:56
If you take a partial distribution now, it will not qualify as a lump sum distribution unless all the shares are distributed in the same year. Therefore, if you want to diversify, the plan might offer a chance to sell and reallocate the proceeds to a 401k or other plan they offer as an internal transfer. Of they might allow you to do a direct IRA rollover of the 25% and you could diversify in the IRA. Of course, even if you cannot use NUA on the 25%, if the plan accounts for the cost basis in different lots, you could elect to diversify using the 25% with the highest cost basis and that would reduce the remaining cost basis per share. Most plans however use average cost basis and that would result in the remaining shares having the same 16% they have now.