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An employee stock ownership plan (ESOP) is an IRC section 401a qualified defined contribution plan that is a stock bonus plan or a stock bonus/ money purchase plan. An ESOP must be designed to invest primarily in qualifying employer securities.Beneficiaries of ESOP plans are taxed in the year that amounts are distributed or made available to them. When you receive property from an ESOP, such as stock, the amount is usually based on the property's fair market value.
So - regardless how the money are used - that distribution will be taxable for the payee.
- can ESOP distribution be used to pay for down payment on a new house - yes.
- will that allow to avoid taxable income - no;
So what to do to avoid large taxable income? - spread distribution over several years.
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