ESOPs or Employee Stock Ownership Plans are a qualified defined contribution plans under the Internal Revenue Code. ESOPs or Employee Stock Ownership Plans require an annual business valuation. They are often used as a way for business owners to create liquidity for themselves while staying involved with the business. In this post, I am going to focus on the benefits of ESOP’s, Employee Stock Ownership Plans to employees participating in the plan.
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Employees obtain many benefits through the creation and use of an ESOP. The largest benefit is the the ESOP is a retirement plan that is funded by the employer.
- The sponsoring Company makes annual contributions to the ESOP. These contributions of stock and/or cash increase the value of the participating employees’ accounts within the ESOP trust.
- A participant’s account balance that remains in the trust (including the value of stock appreciation), is not taxable to the participant until the participant withdraws the funds through a distribution.
- Once employees reach the age of 55 and have at least 10 years of participation in the ESOP they will be allowed to diversify a portion of their ESOP account.
ESOP’s provide a company funded retirement plan for participating employees. In short a very good deal.
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