Suppose an employee has a stock purchase plan with his employer under IRS Code 423. The employer’s stock is publically traded. The plan gives the employee the option to receive stock in the employer company at a discount to the then-current market value.
The value of the discounted stock is in lieu of an equivalent amount of salary. There is a four-year restriction against selling the stock. After four years, the employee may either sell the stock or move the stock to his personal stockbroker institution.
The IRS does not tax the employee on the amount of the stock options discount from market value in the year the employee elects to take the stock in lieu of salary. The employer’s stock plan, and the non-taxability of the value discount, is covered by Section 423(b) of the Internal Revenue Code.
Is the stock exempt from creditors? One might at first think that the employee stock plan is a type of retirement savings. Generally, all pension and retirement plans are exempt assets under Florida Statute 222.21.
I think the employee’s stock would be protected during the period prior to vesting. Before the expiration of the four-year vesting restriction, the employee may not sell or transfer his stock. During those four years, the employee’s creditor can get no greater rights to the stock than the employee’s own rights and access.
However, the stock would not be exempt once the vesting period ends and the employee has access to the stock. Florida statute 222.21 exempts tax-deferred pension plans covered under specific sections of the Revenue Code, such as sections 401 (401 k plans) and 408 (IRAs).
Section 423 is not one of the tax code sections listed in the statute. Therefore, I do not believe stock would be exempt from creditors under Florida statutes just because it receives favorable tax treatment and is intended to be used for retirement.