ESOP Distribution Timing: Death, Disability, Retirement

Posted by Aaron Juckett, CPA, CPC, QPA, QKA on Thu, Jan 14, 2010
Find me on:

The Internal Revenue Code provides that ESOP distributions to participants that terminate as a result of death, disability, or retirement must begin no later than 1 year after the end of the plan year of the termination date. For example (assuming a 12/31 plan year end), if a participant terminates after meeting the retirement provisions of the plan on August 15, 2009, the participant must begin receiving payments after the December 31, 2009 allocation is completed (which should be sometime in 2010), and the payments must begin by December 31, 2010.

IRC Section 409(o)(1)(A)(i) - Qualifications for tax credit employee stock ownership plans - Distribution and payment requirements – Distribution requirement – In general

§ 409. Qualifications for tax credit employee stock ownership plans

(o) Distribution and payment requirements

A plan meets the requirements of this subsection if—

(1) Distribution requirement

(A) In general

The plan provides that, if the participant and, if applicable pursuant to sections 401(a)(11) and 417, with the consent of the participant's spouse elects, the distribution of the participant's account balance in the plan will commence not later than 1 year after the close of the plan year—

(i) in which the participant separates from service by reason of the attainment of normal retirement age under the plan, disability, or death

Topics: ESOP distributions, distributions, ESOP, employee stock ownership plan

Aaron Juckett, CPA, CPC, QPA, QKA
Written by Aaron Juckett, CPA, CPC, QPA, QKA

Aaron is President and Founder of ESOP Partners and provides implementation, administration, and consulting services to hundreds of companies. He is a member of The ESOP Association (TEA) and the National Center for Employee Ownership (NCEO).

Keep Your ESOP On Track and On Time
12 Benefits of Incorporating an ESOP in your Business Exit Strategy

Recent Posts