72t distributions

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L1: 72t distributions
I am 45 and have accumulated $440,000 in a company’s private stock through a ESOP. Avg growth has been consistently over 8%..even in the tougher times. I am considering setting up a 72t acct to supplement my monthly budget but not sure how to do it using
a companies privately held stock.. I dont want to take it out and loose the growth its been having…any suggestions? Thanks!

2011-08-09 19:15, By: Rob, IP: []

L2: 72t distributions
You can transfer these shares to a SEPP 72-T self-directed IRA if you can find a fiduciary who is willing to handle closely-held private company stock. ( I assume that you mean that this is not a public company.)
The next problem would be in meeting the required distribution each year. Usually this is made in cash, but how will these shares generate cash ? You might be able to sell them to generate cash, but I don’t think that you want to sell them. You could do
“distributions in kind” by transferring shares from the SEPP 72-T to a non-retirement account, but there would be a problem valuing these shares, as well as how to provide cash in order to satisfy the exact annual distribution requirement.
Based upon all of the above, it is probably not practical to consider a SEPP 72-T with closely-held private company stock.
2011-08-09 19:46, By: dlzallestaxes, IP: []

L3: 72t distributions
Thanks forinformation. Yes its a privately held company. I wasnt sure how distributions would be made without selling a portion each year. I also thought I would check with the retirement dept or financial co’s in town to see if they arefamiliar with
anyone else that may be currently doing this using this stock.
2011-08-09 19:59, By: Rob, IP: []

L2: 72t distributions
One thing you might find out before you get too far into this is if your stock will need to be sold if you retire. I retired a couple of years ago from a company that was a 100% employee owned ESOP. One of the requirements of the ESOP was that you had to
be an employee to own company stock. Meaning that if you retired, you had to sell back your company stock.
Chuck W.
2011-08-09 20:48, By: Chuck, IP: []

L3: 72t distributions
But he said he is 45, so the situation 10-15 years from now is irrelevant.
2011-08-09 21:29, By: dlzallestaxes, IP: []

L4: 72t distributions
While the past earnings have been impressive, I think you should be concerned with diversification which would involve selling some of the shares.
Another factor to consider is NUA potential, but that would require a lump sum distribution. You have no basis in the shares and if you could pay the much lower LT cap gain rate vrs ordinary income, it would make diversification
much less costly from a tax standpoint. Selling the shares would also help you avoid a 72t plan which is not a good idea while still in your 40s, because it is almost impossible to know how much you would need from a 72t IRA plan.
For NUA to be considered, the plan would have to provide you with a cost basis figure per share. Something to check into.
2011-08-09 22:58, By: Alan S., IP: []

L5: 72t distributions
NUA requires that you have left the company. Also, if you are under 59 1/2, it is subject to the 10% penalty. I know that it applies to 401-K and company profit-sharing plans. I’m not sure if that includes ESOPs.
2011-08-09 23:15, By: dlzallestaxes, IP: []