This week in class we talked about stock bonus plans and employer stock ownership plans. A stock bonus plan is a specific type of defined contribution profit sharing plan in which employers contribute stock. An employee stock ownership plan is a defined contribution profit sharing plan that is established as a trust. The stock that is contributed to the plan receives a special tax deduction. In both stock bonus plans and employer stock option plans the participant’s have voting rights. This is because as an owner of the company’s stock, they are considered a partial owner in the company. In a stock bonus plan the participant must have pass through voting rights. In a privately traded corporation, ESOP participants have voting rights as regular shareholders and can earn dividends. In a privately held corporation, ESOP participants must be allowed to vote in major corporate decisions such as mergers, acquisitions, consolidation, etc. Stock bonus plans and ESOPs are essentially the same, minus a few differences. One main difference between the two is that stock bonus plans integrate social security while ESOPs do not. Another major difference is that ESOPs allow portfolio diversification and stock bonus plans do not.
We also discussed distributions and rollovers from qualified plan. In a profit sharing plan, distributions may permit in-service withdrawals after two years of participation within the plan. Conversely, pension plans do not allow in-service withdrawals for participants under the age of 62. We also touched on rollovers. There are two types of rollovers in-plan rollovers and rollovers between plans. A major benefit of rollovers is tax benefits, not only income tax but estate tax as well. The ATRA of 2012 permits transfers of any amounts “not otherwise distributable” under a qualified plan to a designated Roth account. The ATRA has specified amounts that are considered eligible.
Another interesting thing we learned this week was 10-year forward averaging and the pre-1974 capital gains treatment. It is very rare to have to deal with plans of this nature. Many people born before 1936 do not have plans like this, making it rare to see it in the retirement business.
We also discussed distributions and rollovers from qualified plan. In a profit sharing plan, distributions may permit in-service withdrawals after two years of participation within the plan. Conversely, pension plans do not allow in-service withdrawals for participants under the age of 62. We also touched on rollovers. There are two types of rollovers in-plan rollovers and rollovers between plans. A major benefit of rollovers is tax benefits, not only income tax but estate tax as well. The ATRA of 2012 permits transfers of any amounts “not otherwise distributable” under a qualified plan to a designated Roth account. The ATRA has specified amounts that are considered eligible.
Another interesting thing we learned this week was 10-year forward averaging and the pre-1974 capital gains treatment. It is very rare to have to deal with plans of this nature. Many people born before 1936 do not have plans like this, making it rare to see it in the retirement business.