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Wife's company purchased; ESOP being liquidated


Guest mickster

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Guest mickster

My wife's company was just purchased by a much larger company. Her share values in her ESOP increased by 250%. The total value is over $200,000. She became fully vested immediately.

There will be 2 distributions, 1 within 90 days and the 2nd distribution will be within 1 year due to IRS review.

We are currently in the 28% marginal Federal tax bracket and pay about 22.5% taxes. We live in New York State.

Here are my questions/observations:

Is this distribution handled as a retirement account liquidation (non-Roth IRA or non-Roth 401K)?

Will it have to be rolled over within 60 days to a non-Roth IRA or non-Roth 401k or else risk being taxed on it as ordinary income and also have to pay the 10% early withdrawal penalty (excise tax), thereby moving us up into 33% or 35% marginal Federal Tax Bracket?

Or, will it be handled as Capital Gains and will it be considered short-term or long-term or a combination thereof?

She has been with the company for 6 years and been an ESOP participant for that time.

Thank you in advance!!

Michael

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At least 30 days before the distribution, your spouse will receive information about the tax effects of the distribution. Or you can look at IRS Notice 2009-68 to pick up the information in generic form. You will have to get information about basis of the stock to be able to evaluate the option that allows some of the distribution to be taxed at captial gains rates, if a stock distribution option is availabe.

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Guest mickster
At least 30 days before the distribution, your spouse will receive information about the tax effects of the distribution. Or you can look at IRS Notice 2009-68 to pick up the information in generic form. You will have to get information about basis of the stock to be able to evaluate the option that allows some of the distribution to be taxed at captial gains rates, if a stock distribution option is availabe.

Thank you! That is very, very helpful.

Thanks again!!

Michael

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  • 1 month later...
Guest mickster

I don't have the final details yet but I do know that it will be a cash distribution, not stock. There were no dividends.

I expect the paperwork sooner than later.

Thanks,

Michael

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