Introduction to employee stock ownership plans (ESOPs)

By Steve Savant

Ash Brokerage Corporation


The ESOP is essentially a stock bonus plan in which employer stock may be used for contributions. The employer contributes company stock or cash to the plan, and the contributions are tax-deductible. Contributions are not taxed currently to the employee. Earnings accumulate income tax-deferred. Distributions are generally taxed as ordinary income. Distributions may be eligible for 10-year income averaging. Or, at retirement from the current employer, distributions may be rolled over to a traditional or a Roth IRA, or to another employer plan if that plan will accept such a rollover. Steve and Keriti lay out the essentials as they introduce ESOPs into your practice.