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Tony Redrum

Posted: Thu Jul 05, 2007 3:09 am

Guest

Hello:

I will be eligible next year to take 10 percent of my ESOP money out
if I want to (the gross distribution should be around $80000.00).

Now I certainly will roll it over into something such as an IRA to
avoid the penalties.

But what I want to do is pay off some nagging credit card debt,
currently the balances total around $12000.00 split up with about
$7500.00 in a balance transfer "new account" interest lock of
2.99%(until paid off, not a 12 month teaser rate) and another $4000.00
or so in a normal account at 8.25%.

Now I get these balance transfer offers all the time, so I could just
find the best deal for that $4000.00 in another balance transfer
"lifetime" interest lock (only now the rates have crept up to 5 or
6%).

So what is a good strategy to use with the rolled over money? Should I
roll over all of the distribution then take out the cash to pay off
the debt? Do a partial rollover and pay the debt off with the proceeds
(after figuring out how much extra to take out to cover penalty and
taxes)?

What is the best way to keep this "semi-liquid" so I can draw on it if
need be (understanding that penalties and extra income taxes would
need to be paid each time I did this)?

Thanks,

Tony

Dave Dodson

Posted: Thu Jul 05, 2007 3:19 am

Guest

On Jul 4, 6:09 pm, Tony Redrum <f...@not.com> wrote:

Quote:

I will be eligible next year to take 10 percent of my ESOP money out
if I want to (the gross distribution should be around $80000.00).

Now I certainly will roll it over into something such as an IRA to
avoid the penalties.

Hmmm. ESOP stands for Employee Stock Ownership Plan, doesn't it? Is it
qualified money? Did you put pre-tax dollars into it? If not, then you
can't roll it over into an IRA, and there aren't any penalties for
taking the money and spending it. Can you tell us more about the plan?

Dave

Tony Redrum

Posted: Thu Jul 05, 2007 12:59 pm

Guest

On Wed, 4 Jul 2007 18:19:31 -0500, Dave Dodson
<dave_and_darla@Juno.com> wrote:

Quote:

Sure. You are correct that it is a employee stock ownership plan where
I am issued a set number of shares based on my compensation (the
company is privately held so its not publicly traded) each year, as
such, I do not have any direct control of the shares themselves (nor
can I purchase more shares) as the company was set up as an "Employee
Owned" company some years ago when the founder retired.

There is a BOD that meets yearly to declare dividends (you can elect
to receive the dividend, which is subject to the penalty/withholding
rule or keep it in your account ).

So even though I don't contribute any money to it, it's still treated
much the same as any 401k plan with a 10% penalty and 20% withholding
if you don't roll it over to a shelter of some sort however you can
only withdraw 10% every 10 years .

The value of the stock is completely dependant on the companies
financial performance and the value of its assets at the end of each
fiscal year so there is always the chance that the stock could lose
value. However in the 22 years that I have worked there, that has
never happened. The average appreciation has been 6% of late, however
in the boom years it was 10-18% for quite a while.

Anyway, the way one person structured his distribution was to open
something called a 70t account (or something like that--I know it
ended with a T though) and was able get a monthly payment for it. The
down side to that plan is that it was fixed amount determined by your
age and you were committed to this for set number of years based on
actuarial formula of the IRS so I don't know if that's a viable option
for myself.

kastnna

Posted: Thu Jul 05, 2007 11:00 pm

Guest

Quote:

Anyway, the way one person structured his distribution was to open
something called a 70t account (or something like that--I know it
ended with a T though) and was able get a monthly payment for it. The
down side to that plan is that it was fixed amount determined by your
age and you were committed to this for set number of years based on
actuarial formula of the IRS so I don't know if that's a viable option
for myself.

You're thinking of 72(t), but I don't think it will serve your
purposes here. Google it!

I gotta run, wife's glaring at me. More on this later.

Dave Dodson

Posted: Fri Jul 06, 2007 12:29 am

Guest

Thanks for the extra information. Unless you are 59-1/2 years old, you
will be subject to penalties for taking early distributions unless you
take substantially equal distributions based on the IRS's life
expectancy tables for at the longer of 5 years and until you are
59-1/2. There are some exceptions to the penalties; according to IRS
Publication 590, which you can find at irs.gov:

--- quote from www.irs.gov/publications/p590/ch01.html#d0e8223 ---

There are several exceptions to the age 59-1/2 rule. Even if you
receive a distribution before you are age 59-1/2, you may not have to
pay the 10% additional tax if you are in one of the following
situations.

You have unreimbursed medical expenses that are more than 7.5% of your
adjusted gross income.

The distributions are not more than the cost of your medical
insurance.

You are disabled.

You are the beneficiary of a deceased IRA owner.

You are receiving distributions in the form of an annuity.

The distributions are not more than your qualified higher education
expenses.

You use the distributions to buy, build, or rebuild a first home.

The distribution is due to an IRS levy of the qualified plan.

The distribution is a qualified reservist distribution.

--- end of quote from www.irs.gov/publications/p590/ch01.html#d0e8223
---

If none of these apply to you, and you don't want to take
substantially equal distributions as above, then I suggest you try to
find other money to pay your credit cards off with. Paying a penalty
to avoid interest somewhat defeats the purpose, doesn't it.

Dave

joetaxpayer

Posted: Fri Jul 06, 2007 1:33 am

Guest

Tony Redrum wrote:

Quote:

You are in great shape, with much of that debt at 3%, and the rest, only
$4k, I'd just try to make extra payments to knock off the $4k. Using the
new offers to keep that rate low is a good idea.
If the ESOP is pretax and you are permitted to roll the vesting portion
to an IRA, that's the way to go. High on the list of investing mistakes
is having too much money in one's company's stock. Diversifying as it
vests is the way to go. It's very rare that liquidating retirement funds
to repay debt (let alone debt at relatively low rates) makes any sense.
JOE

kastnna

Posted: Fri Jul 06, 2007 5:28 am

Guest

In addition to Joe's remarks, the "privately held" status of the
company makes it even more important that you take advantage of this
opportunity to rollover the funds. Liquidity is reduced and control is
largely taken away from you. Take advantage of this situation to
change that.

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