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Question about my esop plan.

I no longer work for the company, vested balance is around 18,600 and i want to either take it all out or use it to help purchase my first home. what are my options?

Apr 06, 2014 by Jimmie from Granby, MO in  |  Flag
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Hello Jimmie,

If you withdraw (called "distribute") your ESOP vested balance, you'll have to claim that as income in the year distributed and will pay income tax on it. If you're under age 59 1/2, you'll also pay a 10% federal penalty tax on it. The plan administer will be required to withhold 20% federal tax and you'll square that up with the rest of your income, deductions, and credits when you file your tax return at year-end.

If you first roll your ESOP vested balance DIRECTLY to an IRA, you can then distribute from the IRA up to $10,000 toward purchase of your first home without incurring the 10% federal penalty tax, but you still pay income tax on that.

If you don't absolutely need it, I'd encourage you to consider directly rolling your ESOP balance to an IRA and letting it continue to grow for future retirement needs. Then you'd avoid income taxes now plus any penalty tax concerns, plus you won't lose tax-sheltered growth to this point.

Hope that helps. All the best!

Comment   |  Flag   |  Apr 06, 2014 from Clackamas, OR

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Hi Jimmy, Your access to the money may depend on how the ESOP plan is set up. Make sure to check with the plan administrator on the rules. For example, sometimes in ESOPs you only have access to the money at certain times of year or under certain circumstances.

Comment   |  Flag   |  Apr 07, 2014 from Alexandria, VA

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