What to do with super-tiny IRA?

[marklar13]

Hopefully a pretty easy question here.

I am leaving my current employer. One of the benefits they had was an ESOP plan that has an automatic contribution after 1 year of service, with a vesting period of 5 years. I have been with them for a little under 2 years, and the account balance is $96 with a vested amount of a whopping $2.61.

It looks like this ESOP is set up as an IRA account. My question is... after I leave, whats the easiest way to get rid of my $2 account? I'm guessing that I should just take the distribution and my 26 cent penalty (10% early withdrawal)? Is there any reason not to do that?

Thanks.

[sycamore]

A distribution would be pretty easy.

Or, if you have another Traditional IRA account, I'd just rollover from your ESOP IRA to that IRA.

[marklar13]

I have a traditional with a 0 balance that I use for backdoor roth at vanguard. This $2 account is at Fidelity. Basically I'm looking for the least amount of paperwork possible to get rid of the $2 account. I'm pretty sure it is to take the distribution -- just want to make sure this wouldn't cause any unforeseen issues. I can't imagine that a $2 account is going to hurt me even if I screw something up, but IDK, our tax system is weird, so I figured I'd ask.

[sycamore]

Yeah, taxes have lots of gotchas. What you're proposing is not uncommon. Worst case, Fidelity messes up the 1099 by putting down the wrong code for the distribution, and you'll have to work with them to get it fixed. Once you get the 1099 just plug the info into your tax software and it should handle it (including figuring out the penalty).

[Stinky]

I'd take the $2.61 distribution, pay the taxes and penalty, and go on my way. Simplify your financial life, and get rid of the account.

Just don't spend the entire net proceeds of $1.50 or so all in one place.

[BoglesRazor]

I don't know what an ESOP plan is, but if you have $96 + $2 (gain ?) in an IRA plan, I would just roll it into a self-directed IRA and keep the money as 100% total stock market. While the market is volatile, starting with a small amount is the best way to grow without losing anything. I noticed this as a I rolled a former employers' 401k with a starting value of $200, which turned into $1000 within a couple years. While $98 may not seem that significant, it can grow pretty quickly if you are willing to enter the stock market now. Just my two cents.

[David Jay]

I'd take the $2.61 distribution, pay the taxes and penalty, and go on my way. Simplify your financial life, and get rid of the account.

Just don't spend the entire net proceeds of $1.50 or so all in one place.

This!

Don’t mess with this, just clean it up.

[David Jay]

It looks like this ESOP is set up as an IRA account.

An ESOP is closer to a 401K in that it is an employer sponsored plan, is covered by ERISA and has a Summary Plan Description (SPD) available to participants. Company contributions to the plan typically have a vesting period to encourage employees to stay with the company.

The “I” in IRA stands for Individual - the plan belongs to an individual.

(I was with an ESOP company for more than 30 years)

[David Jay]

I don't know what an ESOP plan is, but if you have $96 + $2 (gain ?) in an IRA plan, I would just roll it into a self-directed IRA and keep the money as 100% total stock market. While the market is volatile, starting with a small amount is the best way to grow without losing anything. I noticed this as a I rolled a former employers' 401k with a starting value of $200, which turned into $1000 within a couple years. While $98 may not seem that significant, it can grow pretty quickly if you are willing to enter the stock market now. Just my two cents.

An ESOP is NOT an IRA. There is a vesting schedule. He doesn’t get the $96 If he leaves this year.