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Dr. Don Taylor, CFA, advice columnistRisk of rolling over 401(k) with company stock

Dear Dr. Don,
We are retiring soon. I will have a 401(k) that includes company stock to roll over into an IRA. Where to transfer money and with whom? I would like no-load funds. It's approximately $80,000. Please help!
-- Sandi Solutions

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Dear Sandi,
Rolling company stock out of a 401(k) into an IRA can be a huge mistake. Get thee to a tax professional that can help you understand the issues surrounding net unrealized appreciation (NUA). You could save thousands on your taxes, which means thousands more in your retirement nest egg.

You have to do this correctly to realize the tax savings. That's why you want to involve your tax professional. There are no do-overs with this strategy. You can do an IRA rollover for any part of your pension that isn't invested in company stock, but the company stock should go into a taxable brokerage account. Everything has to move at once, that is, you need to take a lump sum distribution from the 401(k) with company stock going to the brokerage account and the noncompany stock investments going into the IRA rollover account. There are also forms to file with the plan administrator as part of an NUA strategy.

A trustee-to-trustee (direct) transfer of assets is always preferred for assets that are going into the IRA rollover account. If your 401(k) plan writes a check out that's payable to you then the money is subject to mandatory withholding and creates a host of headaches in fully funding the IRA rollover account -- namely, you have to replace the funds that were withheld with additional cash to fully fund the account.

So, for the noncompany stock assets held in your 401(k) plan, the IRA rollover is the way to go and I see nothing wrong in finding a mutual fund family that offers a nice selection of no-load mutual funds. I recommend using the free mutual fund screening tool on to search for no-load mutual funds. Happy hunting.

To ask a question of Dr. Don, go to the "Ask the Experts" page, and select one of these topics: "Financing a home," "Saving & investing" or "Money."'s corrections policy -- Posted: April 18, 2006
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