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Distribution of dividends from a qualified plan
Old 05-12-2015, 10:36 AM   #1
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Distribution of dividends from a qualified plan

Is anyone here familiar with the possibility of taking a distribution of company stock dividends from a qualified plan and avoiding the 10% early withdrawal penalty? I found an IRS document that states you can avoid the penalty if the distribution is dividends from company stock in a qualified plan. The company I work for has an ESOP and they fund the distributions out of the plan by declaring a dividend on the shares to supply the money. That dividend is applied to all shares equally or course. I am a high share holder so my dividend is generally large. I'm 54 so figuring ways to access the money without the penalty could allow me to retire about any time really. I have about $650K in an IRA from rollovers from the company plan but short of a 72T on that I need to figure out an income stream in order to retire early. The balance in the company plan is large but it would be paid out over a 10 year period. If they continue to fund the distributions the same was I could take the dividend portions (or some of it) as my income each year and roll over the rest of the distribution to the IRA until I'm 59-1/2. I just haven't been able to find anyone that has done this or is familiar with it.

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Old 05-12-2015, 10:43 AM   #2
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google in-kind distributions from an ESOP

Swing hard, look up
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Old 05-12-2015, 01:14 PM   #3
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Originally Posted by Big_Hitter View Post
google in-kind distributions from an ESOP
Looking up the in-kind distributions it looks like most of the info I find is explaining how to best take the distribution in company stock rather than cash for tax purposes. I don't believe our plan would not allow the stock to be distributed that way. Regardless what I am referring to is not taking any stock from the plan at all. The company pays a dividend into my account each year. For example if there are a million dollars in distributions that need to be paid this year the company will declare a per share dividend to generate that million dollars inside the trust. The trust holds essentially 100% of the shares. So if there are a million shares that is a dividend of $1 per share. That $1 per share would apply to all the shares equally. That $1 per share would apply to all shares that are credited to me and it would go into my account in my name. So if I have 50,000 shares that's $50,000. From what I have read I can withdraw the money from that dividend as a distribution and it is not subject to the 10% penalty for being under 59-1/2. That is what I'm trying to confirm and can't seem to get an answer on. This is not really an in-kind distribution situation I don't think unless there are aspects of it I'm not seeing yet.
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Old 05-14-2015, 08:16 AM   #4
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My megacorp used to automatically distribute the dividend that way. They changed about 10 years ago and now all dividends must stay inside the plan until we separate from the company. Each company will be different. Even if it is allowed by the IRS, your company's policy/plan might now allow it. Best way is to talk with Human Resources (or the company sponsor) or whomever runs the plan and ask them.
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Old 05-14-2015, 09:03 AM   #5
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what does your company plan specify?

from the link above...
The employer may choose to pay dividends directly to ESOP participants on company stock allocated to their accounts.
When dividends are directly paid to participants on the stock allocated to their ESOP accounts, such dividends are fully taxable, although they are exempt from income tax withholding and are not subject to the excise tax that applies to early distributions.
It sounds like the government rules allow for divys to be distributed... but it also depends on the company plan rules. So... to help us out, what are your company plan rules?
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Old 05-14-2015, 09:18 AM   #6
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I think I got my answer on this. We are an S-Corp and an S-Corp doesn't technically pay a dividend its a distribution of profit into the plan to pay obligations. They have always talked about it the terms of a dividend but in actuality the term is incorrect because the money isn't attributed directly to individual share holders since technically the trust is the only share holder and individuals just have a share of the trust. They will break it down and say there are X number of shares outstanding worth so much and your account is this many $ or equal to a certain number of shares but there isn't actually a dividend paid to individuals that way even though I get a number that is the portion of the whole that is mine. If that makes any sense. Long story short my premise about avoiding the penalty is correct but our plan doesn't operate that way. Bummer, back to the drawing board, cancel my fishing trip next week.

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