No, an ESOP is designed so that when a vested participant leaves the company, the value of the ESOP account to that former employee. Normally a Code 4 is a death benefit which does not incur the penalty, but an ESOP can be set up differently.
The ESOP trust (or company) repurchases the employee’s shares and the employee receives payment, which they can choose to roll over into an individual retirement account (IRA) within a stipulated time limit, or pay income tax (along with an additional 10% excise tax if under age 59-½) and use as they would any other income. When a death occurs, it is treated as a separation with the beneficiary taking the place of the employee.
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
