ESOP Distribution Rollovers and 72(t)
L1: ESOP Distribution Rollovers and 72(t)I have some clients that recently retired or will be retired and they are approximately 55 years old. They do not have a lump sum 401k to rollover to an IRA all at once. ESOP distributions are only available to roll out once per year for 5 years (approximately 20% each year).
Obviously if they did a 72t SEPP plan it would be based on just 20% of the total value of their ESOP since that is the “initial” value of the IRA to start with. This does not amount to much for an annual income. I would guess that I would have to implement a small amount of a 72t payment right away. Then for the next 4 years of ESOP rollovers, they would have to be put in a different IRA (because additional contributions are not allowed into the same IRA where the 72t is allowed).
Has anyone ran into the IRS making exceptions for situations like this where they would allow the balance to be based upon the total balance of the ESOP initially? Any other suggestions would be welcomed on this situation also. Thanks.
2014-03-25 19:21, By: Advisor, IP: [18.104.22.168]
L2: ESOP Distribution Rollovers and 72(t)I haven’t had this situation, so I would have to research ifthe VALUE of the ESOP might be 100% of the account, not the 20% distribution that comes each year.
It might be like the concept of an anuity, mortgage, installment note, etc. whereby the total balance is the value, even though only a portion comes thru each year.
2014-03-25 20:42, By: dlzallestaxes, IP: [22.214.171.124]
L3: ESOP Distribution Rollovers and 72(t)Sounds like some of them will qualify for the age 55 separation exception to the early withdrawal penalty. If so, they could cash in whatever amount of the ESOP distributions they need and roll the rest over to an IRA. That would get them to age 59.5 without a SEPP plan. Note that 20% mandatory withholding would apply to the ESOP distributions.
The age 55 exception applies if separation occurs any time in the year they will reach 55 or later.
2014-03-26 02:13, By: Alan S, IP: [126.96.36.199]