Why would Employer NOT allow NUA on ESOP stock?
What is the affect to the employer if they do or do not allow NUA on ESOP stock? Does the employer have a negative impact if the employee is able to do NUA? In my experience, every ESOP I have come across doesn’t permit it, which leads me to this question: IF an employer is not impacted negatively by an employee using an NUA strategy, why would you structure your ESOP in a way that doesn’t allow your employees to take advantage of the NUA opportunity?
Permalink Submitted by Alan - IRA critic on Sat, 2022-02-26 01:11
Could you further describe the situation? Are these private employers, and if so are they restricting the distribution of employer shares, or placing conditions on such distributions such as 20% per year, etc?
Permalink Submitted by Jon Steffen on Tue, 2022-03-01 14:40
These are private employers that are restricting the distribution shares
Permalink Submitted by Dan Zaehring on Sat, 2022-02-26 21:21
Many ESOPs in closely held corporations seek to avoid dilution of its stock ownership by requiring the liquidation of a participant’s shares prior to distribution, thus preventing a participant from owning the stock outside the plan. Without this outside ownership there is no NUA possible.
Permalink Submitted by Alan - IRA critic on Tue, 2022-03-01 15:26
Some private employer ESOPs include a provision for distributing the shares to the participant upon departure, and those shares are immediately “put” back to the plan by the participant. NUA is still valid in this case, but the participant does not benefit from holding the shares are reporting the cap gain when they wish. They would owe both ordinary tax on the cost basis and LTCGs on the NUA for the distribution year.