ESOP payment into cash

Generally no, but before I jump to conclusions we need a little more info.

"How old are you" and "how soon do you want the money in hand" will be a good place to start.

Your intentions for these funds may also provide some insight. I will take no offense if you say "it's none of my business", but some expenditures allow you to get at the cash earlier and without penalty.

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I have

Do you have other retirement savings, or is this it? I'm asking, because this amount of money saved and compounded for the future will have a profound effect on how you live in your older existence. Do not touch it now.

Elizabeth Richardson

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Sara, ask your employer if it's possible to distribute the stock to you from the ESOP, before the buyout. It probably isn't, but if it is that could open up other possibilities.

Early distributions from an IRA will be subject to taxes and a 10% penalty, unless you meet one of the exceptions - here's the IRS publication on the topic:

How soon to you plan to retire?

-Tad

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Yes, make sure it is a traditional IRA (not a Roth). That way you can take out what you need and only pay taxes and penalty on the withdrawn amount rather than the entire 50K. Most banks will be more than happy to open one for you. Make sure you have the check made out to that financial institution and NOT to you (this is importent to remember).

Remember to put aside money to pay the additional income tax that you will owe and 10% penalty when you file your 1040 in 2009. Depending on where you go, the financial institution can take the withholding right off the top (20% for federal) and deposit that with the IRS, however that's your choice.

You need to make some decisions as to what you want to put the rest of the money into so you may want to do some research into various investments (mutual funds, ETF's etc).

In your situation it may be prudent to keep the remaining money as liquid as possible, that is, invest in something that can be sold quickly or just find a good money market account.

Good luck!

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...The owners say they will only

How old are you, Sara? It would make a big difference if you were 59

1/2, since you could start withdrawing from a traditional IRA right away. However, if you are younger, there are also circumstances where you could withdraw from it without penalty (first home, medical, etc.). Also, you could check into the Equal Periodic Payments Exception clause for withdrawing under age 59 1/2. Google "IRA withdrawals" on the web to research. All of your IRA would grow tax- free, but you'd pay taxes on the withdrawals, and penalties if you withdraw without accepted reason.

A Roth IRA may be better if you are young. You'd have to pay taxes on the whole 50K when you put it in, so you'd lose 15%+ of it right away, but you could withdraw the principal at any time (but not the earnings). Withdrawals would be tax-free.

This is my limited knowledge, maybe someone has better info.

SandyBeth

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"sandybeth" wrote

I second this advice in particular. It sounds like it may be particularly appropriate here. Though like Kastnna wrote, more facts would be helpful to those trying to give guidance here, as you are willing to offer them.

provides an overview of what Sandybeth suggests considering above. Google also for {Rule 72(t)}, since it is this law under which you'd be operating.

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Sorry, but I gotta nit-pick this one. Going to a bank for investment advice is like going to a podiatrist to have your heart examined. They may loosely be in the same business, but that doesn't mean they are experts at all facets of said business. Do it yourself or use a certified fee-based financial planner.

Seconded.

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I agree about the bank and the fee-based planner. You don't want to hire someone for advice who stands to benefit from the advice he gives. You need to try to assess whether your advisor has any kind of conflict of interest. Depending on their certifications, some advisors may be held to a fiduciary standard, which requires them to give advice that is in your best interest; others are held to a much lower standard of suitability. Finally, if you want, check out their advice with us here at misc.invest.financial-plan. We have no conflict of interest and we love to help.

Dave

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Thank you to everyone who has replied to my post..I shall provide a bit more detail if it helps anyone change their advice...I am 51 years old and I do have a 401K plan at work in addition to the ESOP stock and will be rolling that over to the new companies plan...The ESOP plan administrators say they are ONLY distributing funds by putting it into any sort of IRA plan we may have...They have someone from Ferris Baker Watts (Spelling?) coming around in a few weeks to go over or options with us but I can only assume he or she will be pushing their company and long term investment.....

Here is basically why I want to have the money in my hands asap: While I know it`s wiser to put it away as I`m getting older this amount of money could change my life radically right now...My Jeep is always on the verge of breaking down and I could make repairs and/or get a new one or at least feel comfortable knowing the cash is there if anything goes wrong...I have health issues that aren`t covered by my companies medical plan and I could address those...I am staying with relatives as I had a very hard time of it for a long time and am just now starting to slowly get some savings going...If I moved out into my own place right now I would just break even financially each month and save nothing..Even living here it would take me 12 years to save that much money...I HAVE to move out of here..My brother has crack-addict girlfriends who come around..The place is full of roaches..Mice..Parts of the ceiling is coming down..The furniture is all ripped up..I can`t have any friends over..I need to sleep with ear plugs in all night as the people here and neighbors are noisy til all hours and my ears are getting sore from the plugs for years...I would be SO happy living in my own little place and knowing I have that nest egg in the bank and at my finger tips would give me the comfort level to do so and not worry I was just breaking even each month I know most of this may seem silly...I suppose even having it in any sort of IRA if things got bad I could close it and just accept the penalty...I guess my main question was is there some sort of IRA that gets me my money in say 6-9 months and avoids any penalty?...I would be willing even to wait that long so long as I know the money is there and in my name and is under my control and in a disaster I could grab it...Thanks again for all the prompt and helpful input!

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Indeed, I see where you could really use the money right now. However, you have to follow the rules to get the money, there's no way around it. There are only 2 types of IRA's that I know of--the traditional and the Roth. There is not another "type" where you can get your money in 6 months without taking the penalty. Re-read all the advice in the posts above and do some research on getting Equal Periodic Payments Exception or pay the penalty for each withdrawal (you still will get 90% of the money). Also check out the Roth as an alternative. You need to be more pro-active about your situation and stop being the victim or expecting a magic IRA to appear. No one can fix this except for you. SandyBeth

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"sandybeth" wrote

Sara, As has been suggested first put the ESOP money in a money market traditional IRA - such as Vanguard Prime MM - call Vanguard they should be happy to help you with this. You can withrdraw all or a portion at anytime subject to taxes, etc. Please note that if you withdraw a large sum in one year it could jump you into a higher tax bracket. In the meantime I would suggest that you seek financial counseling. Many localities provide free counseling from volunteers with the Cooperative Extension Service. Check with your local government - it is the same office that has the 4H Club and Master Gardener programs.

Good Luck, BeachBum

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Sara, from what you say:

1. As has been mentioned, you may want to move the money to an IRA, then withdraw strictly for the purpose of covering your medical expenses. This way you will not owe a penalty on amounts withdrawn.

1. You should seriously consider a Rule 72(t) distribution plan. It might be a good fit. See
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   among other sites.

1. No more jeeps. They are costly to maintain and the fuel mileage is appalling. Buy a used, low mileage Honda Civic or Toyota Corolla or similar Honda or Toyota. Ask at the Honda and Toyota newsgroups about any in particular you have your eye on.

I am sorry about the medical expenses.

Have you computed how much money you expect to need in retirement? How far you are from actually retiring? How much you need to save for retirement?

How much do you have in your 401(k) right now? How is it invested?

Do you have your monthly expenses on a worksheet? Are your monthly expenses less than your salary? If not, where can you reduce costs? You owe yourself a good quality of life. Hopefully, through careful planning, you can get out of your bad housing situation soon. Lurk here and ask a question any time.

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