Risk of rolling
over 401(k) with company stock
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
-- Sandi Solutions
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 Morningstar.com to search for no-load mutual funds. Happy hunting.
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