There's a little-known tax law buried deep in the tax code, that most people blow right past without ever knowing it exists.
There's a specific tax law that applies to company stock held inside certain retirement plans. If your retirement plan holds actual shares of your employer's stock, this 2-minute check tells you whether it's worth a closer look before you roll that account into an IRA.
Start the 2-minute check →Two ways out of an employer plan full of company stock and most people may not ever hear about one of them.
When you leave a job, the default action is often rolling the entire employer plan — whether it's a 401(k), a profit-sharing plan or an ESOP — into an IRA. That's fine for people who do not have the same options.
How the company stock is moved out of the plan can significantly affect the later taxation of the shares...And that could keep more of your hard earned money from going to the IRS.
Roll it all to an IRA
A simple move for many people. Every dollar that eventually is withdrawn is taxed as ordinary income upon withdrawal.
Take the stock out a different way
The employer stock transfers in-kind to a regular brokerage account. The growth on those shares may later qualify for long-term capital gains rates, which are often lower than the ordinary income tax rates that growth would otherwise face.
Worth investigating before you roll over?
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A recommendation to roll over assets from an employer-sponsored retirement plan to an IRA should be based on the investor's individual circumstances and best interest. Before implementing a rollover, investors should carefully evaluate and compare the fees and expenses, investment options, services, distribution alternatives, withdrawal provisions, creditor protections, required minimum distribution rules, and other available benefits of their existing plan versus those available through an IRA. A rollover is not required and may not be in the investor's best interest in all circumstances. Other options may include leaving assets in the current employer plan (if permitted), transferring assets to a new employer's plan (if available), or taking a distribution. The Investment Adviser Representative and/or advisory firm may receive compensation or other economic benefits if assets are rolled to and managed in an IRA, creating a financial incentive to recommend a rollover. Accordingly, any rollover recommendation should be made only when the adviser reasonably believes it is in the client's best interest after considering costs, services, investment options, and reasonably available alternatives. This material is for informational purposes only and should not be construed as tax or legal advice. Investors should consult their tax and legal advisors regarding their specific circumstances.