How Can You Make Withdrawals From ESOP Investments?

Employee Stock Option Plans provide eligible employees with an ownership interest in the company with stock purchased on behalf of the employee by the company. Before an you can withdraw ESOP funds, you must be vested, meaning you have been with the company long enough to have ownership of the shares. Your ability to take out ESOP funds is also contingent upon whether or not you are still working for the company.

Call the ESOP plan administrator at the number located on the ESOP statement. If you do not have a statement, call Human Resources to find the correct number to contact the administrator.

Ask the ESOP administrator representative if you are eligible to take funds out. The funds must not be leveraged and you must be vested at the very least for eligibility. Those under the age of 59 1/2 have to qualify for either a hardship distribution, a designated number years of service exception or have reached a specified age designated in the ESOP adoption agreement.

Request a distribution form from the administrator. Complete the form including any exception designations required on the form. Submit the signed forms and return them to the ESOP administrator.

Obtain the 1099-R from the ESOP administrator when filing taxes. Subtract the amount in Box 1 from Box 6 to get the cost basis.

Add the value of the cost basis stock to gross income on Line 15, Form 1040 when filing taxes. Distributions prior to age 59 1/2 need to fill out Form 5329 to determine the 10 percent penalty, if any, and all applicable exceptions to the penalty. Complete Schedule D to account for any capital gains or losses from the sale.

Tips

  • The Internal Revenue Service allows hardship distributions from tax-deferred plans without the 10 percent penalty applied. Hardship distributions include using assets to prevent foreclosure or eviction or to pay extreme medical expenses.

References

About the Author

With more than 15 years of professional writing experience, Kimberlee finds it fun to take technical mumbo-jumbo and make it fun! Her first career was in financial services and insurance.