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Subject:   ESOP QUESTION
Date:   Tue, 15 Mar 2005
From:   Barb

My husband's company "gave" him stock shares every year in his ESOP. My husband never paid anything to the fund. Now the employer wants to "buy back" the stock and dissolve the ESOP.

When they buy back the stock and my husband doesn't roll over the funds into another plan, is there a penalty of 10%? Also, are the taxes just computed by adding the amount into our regular income? Are there any additional taxes?

Answer

Date:   Fri, 08 Apr 2005

Hello Barb,

You haven't given me enough details for me to give you a complete answer. Assuming your husband is under age 59 1/2 and isn't terminating his employment, the 10% penalty will apply if he doesn't roll over the distribution. The regular tax will be computed by adding the distribution to his other taxable income.

I highly recommend that you consider a trustee to trustee transfer to an IRA to avoid withholding and to avoid tax on the distribution.

Good luck!

Mike Gray

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IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained in this answer was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.