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    The Key Differences Between ESOPs and Other Retirement Plans

    [fa icon="calendar"] Feb 20, 2018 12:27:00 PM / by Kevin Long

    Kevin Long

    Employee stock ownership plans (ESOPs) are retirement plans. As such, ESOPs are required to followshutterstock_578213212 Explaining all the basic rules for tax qualification and non-discrimination that other retirement plans such as 401(k)s must follow. Like a 401(k) plan, ESOPs also let participants roll their distributions over to another qualified plan.

    Aside from those basic similarities, ESOPs are considerably different from other benefit plans. Most notably, ESOPs have advantages for employees that 401(k)s and other similar plans cannot match, including:

    • The ability to make higher annual contributions to an ESOP than to other plans.
    • The potential to receive significant dividends on the stock.
    • Boosting job satisfaction thanks to a tangible connection between the employee's retirement plan account and company success.

    ESOPs also vary from other plans in some of the fundamental rules they must follow. For example, they are exempt from diversification rules, so they can be 100% invested in the employee's company. They also have different distribution rules that help keep a company from being strapped for cash as its employees retire and start receiving distributions.

    In addition to these differences, a well-designed ESOP can deliver tax advantages for companies and sellers that far exceed the tax benefits of a 401(k).

    You can learn a bit more about the similarities and differences between ESOPs and other plans in this video.

    To capture all of an ESOP's potential, work with experts who understand how to build a plan that accomplishes your goals. Contact us to learn how.

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    Kevin Long

    Written by Kevin Long

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