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Anyone Ever been in this Situation?
Old 09-25-2012, 02:17 PM   #1
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Anyone Ever been in this Situation?

I am currently 55. I have enough stock in my ESOP account now to retire early, but the ESOP normal retirement age is defined as 59 and 1/2, so I would not be able to get access to funds until I reach that age. As soon as I separate from service with my company, they cash out my company stock (which now is 100% of my ESOP) and put the cash money into my 401k under a separate account, but you can't withdraw it till the year after you reach normal retirement age.

I could retire today, and be able to diversify the 100% company stock ESOP I now have, if I was allowed access to the ESOP account, but I have to wait essentially till I am 60.

I have some money in my 401k, but not really enough to last till I can get to 60. Also I can wait about 1 more year to diversify 25%, but that's just a partial diversification and I don't get to retire at 55 which was a goal of mine.

I was wondering if there was some way to address this, maybe a loan based on the value of that cash money from my ESOP account that I can't get to to allow me to fund the year or two I need to cover prior to reaching 60.

Has anyone encountered a similar situation or can offer any advice?

Thanks!
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Old 09-25-2012, 02:28 PM   #2
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Quote:
Originally Posted by Dwhit View Post
I am currently 55. I have enough stock in my ESOP account now to retire early, but the ESOP normal retirement age is defined as 59 and 1/2, so I would not be able to get access to funds until I reach that age. As soon as I separate from service with my company, they cash out my company stock (which now is 100% of my ESOP) and put the cash money into my 401k under a separate account, but you can't withdraw it till the year after you reach normal retirement age.

I could retire today, and be able to diversify the 100% company stock ESOP I now have, if I was allowed access to the ESOP account, but I have to wait essentially till I am 60.

I have some money in my 401k, but not really enough to last till I can get to 60. Also I can wait about 1 more year to diversify 25%, but that's just a partial diversification and I don't get to retire at 55 which was a goal of mine.

I was wondering if there was some way to address this, maybe a loan based on the value of that cash money from my ESOP account that I can't get to to allow me to fund the year or two I need to cover prior to reaching 60.

Has anyone encountered a similar situation or can offer any advice?

Thanks!
You may fit under the "so long as you're 55" rule...read the below. I'd check with a financial advisor to make sure this will work for you.

Getting Your Retirement Money Early -- Without Penalty | Nolo.com

"If you are at least 55 years old when you leave your job, you will not have to pay an early distribution tax on any distribution you receive from your former employer's retirement plan. (You will have to pay income tax on it, however.)
This exception applies only to distributions you receive after you have separated from service, or terminated your employment with the company that sponsors the plan. You don't have to retire permanently. You can go to work for another employer, or even return to work for the same employer at a later date. But you cannot receive a distribution from your employer's retirement plan while you are still employed with the company if you want to use the age 55 exception to the early distribution tax."
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Old 09-25-2012, 02:31 PM   #3
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Does your 401k allow loans or allow penalty free withdrawals if you terminate after age 55? (some do, some don't)

Are there other assets you can tap or use as collateral for loans to provide cash to carry you from 55 to 59 1/2?
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Old 09-25-2012, 02:34 PM   #4
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Originally Posted by pb4uski View Post
Does your 401k allow loans or allow penalty free withdrawals if you terminate after age 55? (some do, some don't)

Are there other assets you can tap or use as collateral for loans to provide cash to carry you from 55 to 59 1/2?
Most 401k loans must be immediately repaid upon separation...but worth checking.
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Old 09-25-2012, 02:35 PM   #5
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You may fit under the "so long as you're 55" rule...read the below. I'd check with a financial advisor to make sure this will work for you.

Getting Your Retirement Money Early -- Without Penalty | Nolo.com

"If you are at least 55 years old when you leave your job, you will not have to pay an early distribution tax on any distribution you receive from your former employer's retirement plan. (You will have to pay income tax on it, however.)
This exception applies only to distributions you receive after you have separated from service, or terminated your employment with the company that sponsors the plan. You don't have to retire permanently. You can go to work for another employer, or even return to work for the same employer at a later date. But you cannot receive a distribution from your employer's retirement plan while you are still employed with the company if you want to use the age 55 exception to the early distribution tax."
My understanding is that some 401k plans allow this and some do not. While it has never made sense to me why it would be different between 401k plans, I know where I worked did allow such withdrawals but I have hear that other places do not.
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Old 09-25-2012, 02:55 PM   #6
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My understanding is I can get distributions from my 401k without penalty, but cannot get any distributions from ESOP, penalized or not, until I am 60. I will try looking further into that.

I have to pay the 401k loans back on retirement from service, so I don't think that would work.

I have another savings account, but even if I lump it with the 401k, its not enough to cover me till I reach 60.

I was thinking of maybe some kind of annuity that you could pay off in increments, or some kind of personal loan maybe. Something where the cash flow is early and the payment is later. Something like that might not exist, but I figured the people on here would know if it did.
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Old 09-25-2012, 03:15 PM   #7
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if they liquidate your ESOP and put the cash into your 401k , how do ESOP rules still apply. Seems like the 401k plan rules should apply which would allow for withdraws
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Old 09-25-2012, 03:17 PM   #8
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Do you have enough equity in your house where you could refinance and use those funds for living expenses until eligible to use the 401k?
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Old 09-25-2012, 03:57 PM   #9
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Originally Posted by Dwhit View Post
My understanding is I can get distributions from my 401k without penalty, but cannot get any distributions from ESOP, penalized or not, until I am 60. I will try looking further into that.

I have to pay the 401k loans back on retirement from service, so I don't think that would work.

I have another savings account, but even if I lump it with the 401k, its not enough to cover me till I reach 60.

I was thinking of maybe some kind of annuity that you could pay off in increments, or some kind of personal loan maybe. Something where the cash flow is early and the payment is later. Something like that might not exist, but I figured the people on here would know if it did.
The type of loan you describe is called a balloon...tiny payments now, and a big payment in 3,5, or 7 years is common. They will want to see that you have income...get the loan before you quit.
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Old 09-25-2012, 04:00 PM   #10
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if they liquidate your ESOP and put the cash into your 401k , how do ESOP rules still apply. Seems like the 401k plan rules should apply which would allow for withdraws

I do not know what they are, but there are some rules where a company can make profit sharing contributions to the 401(k) and they are treated different than your contributions.... I would assume that ESOP would fall under those rules...
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Old 09-26-2012, 12:55 AM   #11
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An ESOP I was familiar with, had special provisions for certain life events including divorce. I heard there were people who would get a divorce, access the ESOP funds and remarry the same person. The company stock price was at an all time high then. Rest of the folks lost most of it when the stock crashed.
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Old 09-26-2012, 04:21 AM   #12
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as far as i understand if you leave your company at 55 it works like this.

if your 401k plan rules allow for periodic payments you can start to take them penalty free but you will owe tax.

if your plan does not allow for periodic payments then you must roll the whole thing over into your ira and because you are under 59-1/2 you have to 72t the withdrawals until 59-1/2.

its the 72t part that i think many arent aware of.
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Old 09-26-2012, 08:04 AM   #13
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When my (former) company introduced its ESOP in 1997, it had some slightly different rules from its 401(k) plan which had been around for many years. Some time in the mid-2000s it merged the two plans together so we could (a) view the entire balance in a single quarterly statement (and on line), and (b) subject both to the same rules, where applicable, for simplicity. Sorry to see you are getting caught in the cracks (i.e. differences) between the two plans,
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