Should I Roll Over Company Stock?

When you distribute money from your IRA, you pay ordinary income taxes on those distributions assuming your original contributions to the account were made with pre-tax dollars. IRAs and deferred annuities are common tax-deferred investments. First and Last name are required. Consolidating money into an IRA may help investors keep better track of retirement savings. It is a violation of law in some jurisdictions to falsely identify yourself in an e-mail.

The latter option might be more effective, depending on your circumstances, thanks to IRS rules governing NUA of company stock. When you transfer most types of assets from a (k) plan to a taxable account, you pay income tax on their market value.

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But they must also abide by the same rules i. So when your heirs receive the inherited stock , they will pay only capital gains tax on the NUA. If there was any appreciation between the date you distributed the stock from the k and the date you die, the value of the appreciation will receive a step-up in basis.

This means that for tax purposes your beneficiaries receive the stock at the value it was on your date of death. So if they sell it for the same price it was when they inherited it, there is zero tax on that appreciation. It therefore passes to them income tax-free. Mike is 57, about to retire and has company stock in his k plan. At that time, the distributions would be taxed as ordinary income. When Mike dies, his IRA beneficiaries will pay ordinary income tax on all of the money they receive.

But if Mike withdraws the stock from the plan rather than rolling it into his IRA, his tax situation would be different. If Mike immediately sold the stock, he would, on the NUA, have to pay only the lower capital gains tax. Say Mike holds that stock for a year. When he sells it, he pays the lower capital gains tax on the NUA and any additional appreciation. But they would not receive a step-up in basis for the NUA.

This means they would have to pay the lower capital gains tax on the NUA. But if there is an appreciation between the date Mike distributed the stock from the k , and the date of Mike's death, that appreciation will receive a step-up in basis. Thus, Mike's heirs won't have to pay income tax on that appreciation. Say Mike doesn't sell immediately and keeps the stock in the brokerage account. What would his beneficiaries have to pay?

The NUA tax break strictly applies to shares in the company you actually work for. Other assets in the k — such as mutual funds — do not receive it. And you should only consider taking advantage of it if the stock has appreciated significantly from the time it was purchased by your plan.

If it has not, you would be better off rolling it over to your IRA and letting it continue to grow tax-deferred, as you would the mutual funds and other plan holdings. You can, however, split up shares of stock. Suppose that some shares had a very low value when they were first contributed to your k , while others did not. Also remember that you will have to distribute and transfer your plan's assets as a lump sum.

This means that all of the plan's assets, not just the employer's stock, must be removed within one calendar year. Therefore, since trustees can take several weeks to process such requests, make sure you give yourself enough time so that the distribution and transfer occur in the same year.

However, that also means that if the stock has grown enough the NUA is worth more than the original amount , it could be worthwhile to pay the penalty in order to capture the NUA benefit. Have your employer transfer the non-stock assets directly to your IRA. Then have the stock distributed to you in kind. That way, there is nothing left in the plan for the IRS. Also, for record-keeping purposes, do not mix NUA stock with other company stock in the same brokerage account.

Doing so could make it very difficult to get the tax break. Instead, set up a separate account to hold the NUA stock. Other factors to determine before deciding not to roll the assets into an IRA are whether the shares make up a significant amount of your net worth , and whether your main goal is greater diversification.

Remember, once the stock is out of the retirement plan, you will owe tax on any profits, albeit at a reduced rate. On the other hand, if you rolled it over to an IRA and sold shares, the tax is deferred. Finally, in case your employer is not familiar with the NUA tax tactic, you may have to do some convincing. This might involve getting a competent financial advisor or accountant to intervene on your behalf. To get the tax break that is available for company stock in a retirement plan, you'll have to spend some money upfront.

You don't pay taxes if you move k money to an IRA or a new k. Be sure to ask the k custodian to move the money directly from your k to the other retirement account. Any money that's not put back into a retirement account within 60 days will become taxable. The decision to keep the money in a k rather than moving it to an IRA hinges on investment options and fees. If you're thinking of staying put, make sure the options in your k provide sufficient diversification and are low cost.

Some k investments that you may like could be closed to new investors outside of the k or cost more in an IRA because of a difference in share class. Also, find out what account fees the IRA charges, and ask your company about the administrative fees you pay for the k.

Two other factors may call for keeping a k. A k plan has stronger creditor protection than an IRA. And a k plan generally allows you to borrow from the account—IRAs don't. If you keep your old k , you "have the same rights in terms of managing your money," says Andrew McIlhenny, executive vice-president with Firstrust Financial Resources, in Philadelphia.

But you will be subject to the plan's rules, which may, for example, restrict the frequency of withdrawals. Figure out how the rules will affect you after you leave the company. An IRA rollover has several advantages. Primarily, the investing world is your oyster. When selecting a custodian, you can compare fees and look for low-cost investments, such as index funds. If you rebalance frequently, check out the trading costs.

Consolidating money into an IRA may help investors keep better track of retirement savings. Managing one account makes it easier when it comes to asset allocation, rebalancing and even keeping beneficiary forms current. An IRA rollover can simplify required minimum distributions.

Like Blake, if you hold appreciated company stock in your k , you can employ a tax-saving strategy known as "net unrealized appreciation. You move the company stock to a taxable account and owe ordinary income tax—of up to Blake comes out ahead because his projected income tax rate in retirement is expected to be higher than the capital-gains rate, says Weeks.

If you roll your k to a Roth IRA, you can create a tax-free pot of money. You'll pay income tax on the rollover amount, but the money will grow tax free and won't be subject to RMDs.

Market Update

View the performance of your stock and option holdings. Academy. it may be most beneficial for you not to roll over your company stock from the (k) into an IRA. (However, the other assets. Employer stock, your (k) and the NUA the lump sum distribution would rollover the non NUA assets and not rollover the NUA. to an IRA account and taking the company stock in kind using. But if you do invest in your company stock in your (k), before you sell it, reinvest it, or roll it into another plan, do yourself a favor and check out your NUA options. Disclosure: I am/we.