esop distribution

L1: esop distributionCan a widow annuitize her deceased husband”s esop distribution without incurring an early withdrawal penalty. Her husband was placed on permanent disability 1/1/07 and passed away September 4, 2007 at the age of 52. His surviving spouse is 55 years old and needs an income stream which these monies can supply.
Steve Varriale
2007-10-26 09:21, By: stevev, IP: [209.218.97.242]

L2: esop distributionThere are no early withdrawal penalties for death benefits in any event, so it may not be necessary to roll over the plan if the plan will allow periodic or discretionery distributions until she is 59.5.
In addition, ESOP shares are eligible for NUA for a beneficiary in the same fashion as for the employee. If the cost basis for the company shares is low (eg < 30% of the current fair market value), she could do a lump sum distribution of some or all of the ESOP shares and transfer the rest of his retirement plans balance to an inherited IRA. She can take distributions from the inherited IRA until age 59.5 if needed without penalty, and there would be RMDs from the inherited IRA until the year he would have been 70.5, so that''s 18 years with no RMD. After that she can make the inherited IRA her own. There is absolutely no reason for her to incur any early withdrawal penalties, but there are other planning opportunities here as well that should be carefully considered prior to acting.2007-10-26 11:19, By: Alan S., IP: [24.116.165.60] L2: esop distributionAlan: Just to clarify the above: "She can take distributions from the inherited IRA until age 59.5 if needed without penalty, and there would be RMDs from the inherited IRA until the year he would have been 70.5, so that''s 18 years with no RMD." There would NOTbe any RMDs from an inherited IRA until the deceased would have been age 70.5. Correct? Ed2007-10-27 06:03, By: Ed_B, IP: [67.170.159.37] L2: esop distributionEd, Thanks. That''s right, I omitted the first "No". She could take discretionery distributions without penalty, but wouldNOT have a required distribution until her deceased spouse would have reached 70.5. Therefore, in this case, she is better served to actually not make the IRA her own until she is 73. This saves 3 years of RMDs just in case she is not taking at least that much out anyway. In addition, if she were to pass during this 18 year period, she is still treated as the owner of the IRA for purposes of her own successor beneficiary getting a full stretch.2007-10-27 14:08, By: Alan S., IP: [24.116.165.60]