Save time with our cheat sheets, fact sheets, checklists & books!

April 3, 2009

Stock Bonus Plan

Your Guide



An employer-sponsored qualified-retirement-plan established by an employer for the benefit of his employees and their beneficiaries.
Stock bonus plans are defined contribution plans, funded with employer contributions, but can include a 401(k) feature.
Contributions to Stock bonus plans are usually discretionary, i.e. the employer can chose whether to fund the plan on a year to year basis. However, some plans are designed to allow the employer to choose whether it wants to adopt a mandatory-contribution feature in the plan
Earnings in a Stock bonus plan accrue on a tax-deferred basis. Contributions and earnings are taxable to the participant when withdrawn from the participant’s Stock bonus account
Referring Cite
IRC § 401(a)(23); Treas. Reg. §§ 1.401-1(a)(2)(iii) and 1.401-1(b)(1)(iii)
Additional Helpful Information
  • A stock bonus plan must meet certain requirements, which includes the following (Certain exceptions apply: see IRC § 409 (h) ):
    • A participant who is entitled to a distribution from the plan must have a right to demand that his benefits be distributed in the form of employer securities, and if the employer securities are not readily tradable on an established market, the participant must be given the right to require that the employer repurchase them under a fair valuation formula.
    • The employer must provide a put option for a period of at least 60 days following the date of distribution of stock of the employer and, if the put option is not exercised within such 60-day period, for an additional period of at least 60 days in the following plan year
  • In certain circumstances, the term “employer securities” shall include any securities of the employer held by the plan.

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.


Keep Learning

Highly Compensated Employee (HCE)

Definition A highly compensated employee (HCE) is any employee who — Was a 5-percent owner at any time during the year or the preceding year,

Employer Stock or Employer Securities

Definition Employer stocks or employer securities, refers to shares of stock, bonds or debentures issued by a corporation with interest coupons or in registered form.

Be among the first to know when

IRA Rules