ESOP stands for employee stock ownership plan (ESOP), which is a type of retirement account for employees of a company. As is the case with other retirement accounts, ESOPs are governed by the Internal Revenue Service and the Employee Retirement Income Security Act. ESOPs differ from other retirement plans in that they are designed to hold employer securities (stock options), allow account holders to borrow money from the plan, and give account holders the option to exercise ownership rights to the company. If you're interested in buying shares of company stock, you can exercise this right by borrowing money from your ESOP account.
Step 1
Determine how much money you need to borrow. To borrow money from an ESOP account, you're borrowing the cash from the account on an after-tax basis to obtain the cash you need to buy stock in the company. You won't be charged tax on the amount of money you borrow, so determine how much money you need to borrow to buy the amount of stock you want to purchase.
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Step 2
Talk with the account administrator. Call the ESOP account administrator at the financial institution that holds your ESOP account. Let the administrator know that you would like to borrow against your account and how much you want to borrow in order to buy stock in the company.
Step 3
Complete the forms. Obtain the form to exercise your borrowing rights from the account administrator. The form exercises your right to buy stock in the company with the cash in your ESOP account. Send the completed form to the account administrator to process your request.
Step 4
Repay the loan. Since you're borrowing the cash from your ESOP account to exercise an employee benefit to buy ownership rights in the company, the company then starts to repay the cash you borrowed from the account. The company makes tax-deductible payments of principal and interest into your ESOP account to repay the loan.
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