How to Transfer an ESOP to a 401k

Employers often offer their workers Employee Stock Option Plans, also known as ESOPs, which are based on annual profits. These are different than employer-sponsored retirement plans such as a 401k. An employer can maintain both plans for employees to receive the large tax breaks of an ESOP plan and the diversification of a 401k, with the aggregate contributions limited to 25 percent of annual income. Moving ESOP stock to a 401k is contingent on both plans accepting the transfer.

Step 1

Contact the ESOP plan administrator by calling the number on the ESOP annual statement. Explain that you want to transfer the ESOP stock into a 401k plan and find out if the ESOP plan allows this. Request any paperwork required if the plan allows the transfer.

Step 2

Contact the 401k plan administrator by calling the number on the statement and ask if the plan will accept a transfer or rollover from the ESOP. The Internal Revenue Service allows this transaction, but the final decision is up to each administrator. Request the paperwork, if any, from the administrator.

Step 3

Fill out all paperwork, sign it and make a copies for yourself and for each respective administrator. Mail the original paperwork received from the ESOP administrator with a copy of the 401k administrator paperwork to the ESOP administrator. Mail the 401k paperwork with a copy of the ESOP paperwork to the 401k administrator.

Tip

Transfers into the 401k plan must be made as a lump-sum or over a period of less than ten years.

Things You'll Need

  • ESOP statement

  • 401k statement

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