distribution options from esop. 2questions.

[Lori H]

1)a bank employee who will soon turn 65 is considering substantial equal payments into an ira(6 payments). is that allowed?

2)what if she retires and the following day takes a distribution of the stock in her account, would she only be taxed on the basis that the plan paid for the stock and not the unrealized gain/loss until she sells it?

i believe its yes to number one and she would be taxed on all capital gains on number 2 even post distribution?

[BeckyMiller]

First - I am assuming that the options that you described are what the plan allows.

If true, a series of distributions over 6 years commencing at age 65 should qualify for tax-free rollover with the exception of any minimum required distribution rules if the last distribution comes after attaining age 70 1/2.

With respect to a lump-sum distribution, the exclusion is for net unrealized appreciation but that requires that the individual pay tax on the plan's basis in the shares when distributed. Then long-term capital gain on the appreciation when the shares are sold and short-term or long-term capital gain on any subsequent market value adjustments based upon how long the former participant holds the shares before selling.

The participant needs to make sure that any such distribution will qualify as a lump-sum distribution.

These are complicated decisions and if a fair amount of value is involved, the participant should seek experienced tax advice. Few plans provide for a distribution of stock the day following termination.

[Kirk Maldonado]

Becky:

I differ with you on one very minor point.

The person pay's tax on his or her basis in the shares that they receive in the distribution. That amount with respect to a particular share may be different than the plan's basis in that share.

[BeckyMiller]

Good clarification - tracking basis in shares is the subject of some very, very old and incomplete regulations that were issued in a non-electronic age... They aren't much help.