The ESOP is essentially a stock bonus plan in which employer stock may be used for contributions.Maximum annual deduction: Up to 25% of covered payroll (up to 25% for a leveraged ESOP) can be contributed and deducted by the firm. Individual limits: For 2013, the annual allocation of contributions to a participant’s account may not exceed the lesser of 100% of includable compensation or $51,000 per year. If the plan is a KSOP permitting participant deferrals, participants age 50 and older may also make a $5,500 “catch-up” contribution.
Most plans are discretionary as to the amount that the employer contributes. If there are profits, the employer is expected to make substantial and recurring contributions. For a “C” corporation, up to an additional 25% of covered compensation may be contributed and deducted if this contribution is used to repay the principal of a loan used by to the plan to acquire employer stock. Contributions used to pay interest on loans used to acquire stock are deductible without limit. Steve and Keriti summarize the entire week on ESOPs and package the main items of value to an employer.
Steve Savant hosts the weekly TV/Radio and Internet consumer talk show One for the Money as well as the daily Internet talk show, The Business Insurance Zone. Steve is a national financial columnist, blogger and money color commentator. Steve’s special guest is ESOP expert Keriti Tuioti.
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