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BeachBaby asks:

<<Could anyone tell me the most important differences between ESOP and 401k plans? Can you save the same?
Is it taxed the same? etc. Can you transfer money from an ESOP and move it to an IRA without penalty?>>


Both are forms of defined contribution plans which you will find explained in my Foolish Retirement Plan Primer at http://www.fool.com/Retirement/Retirement.htm. In the 401k option, your pre-tax contribution is limited to a maximum annual dollar amount of $10K or 25% of your gross pay, whichever is less. If your employer kicks in, your percentage limit (not the dollar limit) drops, but between the two of you the contribution may be as high as $30K per year. With the ESOP, between you and your employer you may contribute the same 25% or up to $30K per year. If the ESOP and 401k are combined, then the maximum combined contribution is 25% of pay or $30K.

For tax purposes, any withdrawals of previously untaxed money is considered as ordinary income and taxed as such. With the ESOP, the possibility exists to take the shares, pay income tax on the basis of those shares, and later sell them to take advantage of capital gains rates on any gain since purchase. Both the 401k and the ESOP may also be transferred to an IRA to avoid immediate taxation.

Regards..Pixy
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