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Finance & Stock Groups Forum Index » Financial Planning » 401k and lump sum pension IRA's
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| joetaxpayer |
 Posted: Thu Jun 28, 2007 5:13 pm |
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Tad Borek wrote:
Quote: H B wrote:
I did buy my company's stock along with stable value and perhaps a
little in other funds in the 401K, but surely the pay out rollover
amount the investment company gives would be in cash and no stock.
Or, are you saying that the other stock could be a problem, even if not
sold?
HB-
No, not a problem really -- but if you're about to do a lump-sum 401k
rollover that includes company stock it is ABSOLUTELY CRITICAL that you
figure out the best way to take the stock portion, BEFORE setting any
gears in motion.
It's impossible to describe this in a quick post, but there's special
tax-code provision that can apply to a full distribution of employer
stock (ESOP stock) from a 401k plan.
Tad is right here. This applies only to your company stock but you say
it's a large part of your money. Here are a couple links to read a bit
on this. As Tad said, visiting a professional is advised, but I'll add
that it's good to get an understanding first, so when you talk to the
pro, you're not both starting at zero.
http://www.finance.cch.com/sohoApplets/StockRollover401k.asp
http://www.fpanet.org/journal/articles/2004_Issues/jfp0204-art7.cfm
http://www.smithbarney.com/products_services/planning_services/retirement_planning/pdf/nua.pdf
One point - this is called "net unrealized appreciation". Google those
words and you'll find enough reading to keep busy. Fidelity addresses
this at http://www.fidelityresearchinstitute.com/ but it appears to be a
feature article, that will likely change to a different topic. They
offer a nice article at (good link)
http://www.fidelityresearchinstitute.com/pdf/nua_may2007.pdf
An idea of what numbers you're talking would help. Large numbers would
put you in a high ordinary income bracket, and the savings to convert
the stock gains to long term treatment, substantial.
JOE |
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| Guest |
| Posted: Thu Jun 28, 2007 5:13 pm |
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hobnobre@webtv.net (H B) writes:
Quote: My company's stock is indeed at least 1/2 to 2/3 of my worth. That
worries me, but the taxes on selling any worries me too.
I'd suspected as such when you talked about putting so much
into cash. You very likely want to have a substantial portion
of your portfolio in equities - but absolutely not all in
just one company as you currently have. What you've got is
astoundingly risky. (and by "equities" for the vast majority
of folks, I mean equity mutual funds, not individual equities)
As Tad mentioned, there may be some very complex tax issues
associated with employer stock and I highly recommend you
talk to an accountant and/or tax attorney along with any
financial planner you find - or the FP should be able to
recommend one for you - to help deal with the potentially
huge taxes (and potentially huge tax savings should the
position in your company stock be dealt with properly).
Quote: IRA C-D's should be safe, as long as federally insured. (But only
$100,000 limit.) Government Securities should be fine, but I don't know
how to get them.
You can buy treasuries directly, though if you are doing so
in an IRA, you'd do it through your IRA Brokerage account.
I'm assuming you have enough that you could build a very
comfortable laddered set of treasuries at very low cost,
but it would require a certain amount of management. It
may well be worth it to just buy an appropriate bond fund,
hopefully one with very very low expenses, and not have
to pay too much attention to it other than making sure
that your asset allocation (% bonds, % stocks, etc) is
where you're comfortable. If you are only comfortable
with US Treasuries, there are bond funds which have
nothing but them, but you might consider other high
quality bond funds with competent mangagement who may
more than make up for their expense ratio by investing
in a broader array of bonds.
Quote: I do have years of accumulated U.S. Savings Bonds
which recently have begun no longer earning interest and need to be
turned in. This is more taxes.
Pay the taxes and reinvest the money. Those savngs bonds
are generally exempt from state income taxes and you've
effectively had huge tax-advantages all the years you had
them inasmuch as you haven't had to pay taxes on them yet
at all - Savings bonds like that are effectively a very
easy tax-deferred investing option, but when they stop
earning, you start losing ground pretty quickly. You can
probably take care of them entirely on Treasury Direct, too,
for substantial convenience.
Quote: If I cash in my 2 annuities, there will
be more taxes.
We don't know anything about your annuities yet but if they
are typical very high expense VAs, especially if you're well
past the end of the period where you are subject to surrender
charges, you can easily to a 1035 tax-free exchange to another
annuity which fits better into your long term plan. There
are some quite decent ones with relatively low expenses and
no surrender fees.
Quote: I will also have Social Security in 2 years, if still
alive. I own my own condo and have few expenses or debts. That's
pretty much the whole story. Thanks.
Well, it's still a bit vague as a "whole story" and there's
nothing at all unreasonable about not giving too much
detail in an open forum like this, but it seems like you
have enough assets and a complex enough situation that you'd
do very well to find a good financial planner. Your situation
is not one that can be addressed by a simple "okay, kid, save
10% of your income into such-and-such a fund and come back
in 20 years". Based on the questions you started with,
it seems clear that you'd benefit from objective, knowledgable
advice. Not that crap you got from the bank (who apparently
tried to get you to roll a 401k into annuities), but real
professional advice. Even aside from your annuities and
those savings bonds, just dealing with that employer stock
is a major sign that you need either to do a hell of a lot
of self education, or to consult with someone who's already
knowledgable and experienced with that sort of thing.
You have too much at stake, with huge potential costs if
handled improperly, to either just ignore it or to fake
your way through it.
Once you've seen a pro, I do highly recommend that before
you commit any huge money or engage in any transaction that
you don't understand completey, post here and see what
the folks, some of them very knowledgable and experienced
have to say.
--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting |
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| rick++ |
| Posted: Thu Jun 28, 2007 5:13 pm |
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Quote: My company's stock is indeed at least 1/2 to 2/3 of my worth. That
worries me, but the taxes on selling any worries me too.
Thats extremely scary.
Enron, Qwest and Lucent employees thought they'd make
a killing keeping most of their 401Ks in company stock,
which was frequently doubling.
Then bad things happened. I dont dont have a lot a
sympathy for the employees. |
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| H B |
| Posted: Fri Jun 29, 2007 12:38 am |
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HI. Thank you and the others once again. I am uninformed. But I only
"saved" when I didn't see the money first. (Money always ran through my
fingers.) It just accumulated over the decades. I made an appointment
with a planner next week. But to me mutual funds are stock, which I
don't really want. In my old age I hope to have safe as possible
investments.
The 401K savings is relatively tiny for what it is worth.
Thanks so much for saying it would be OK to run anything new by you. If
only there will be time. |
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| Guest |
| Posted: Fri Jun 29, 2007 6:16 am |
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hobnobre@webtv.net (H B) writes:
Quote: HI. Thank you and the others once again. I am uninformed. But I only
Uninformed can be fixed - you're on the right path!
Quote: "saved" when I didn't see the money first. (Money always ran through my
fingers.) It just accumulated over the decades. I made an appointment
That's a good way to do it - if only more people would put
some away before they saw (and spent) it - there'd be a lot
more people in much better shape.
Your situation is a bit complex, but, and granted I'm only
speculating here - it sounds like you've done quite well.
Quote: with a planner next week. But to me mutual funds are stock, which I
don't really want. In my old age I hope to have safe as possible
investments.
Mutual funds can be anything from very risky concentrated,
even leveraged equity investments - to the safest 100%
treasury money-market funds.
As far as safe versus risky, that position in your employer
stock - not just stock, but undiversified stock - is more
risky than the vast majority of typical diversified stock
funds.
A good planner will listen to your concerns about risk and
explain to you a reasonable asset allocation plan - with
appropriate percentages of equity, fixed-income (that's
stock and bonds, respectively), and probably also cash
(that'd be most CDs, money market funds, etc) and maybe
even insurance products (which can make sense, but they
are actually pretty complex and easily misused and
sometimes hard to fix, so if they suggest insurance
products - annuities of any sort - definately ask here
for more advice!).
Quote: Thanks so much for saying it would be OK to run anything new by you. If
only there will be time.
I usually tell folks "don't just do something - stand there!"
meaning, generally, if the money's in some safe cash position
(ie. money market funds) that's almost always okay in the
short run until one has time to sort out the whole situation.
Your situation's kind of the reverse - but the advice is
still probably apt - that employer stock position is a big
risk and needs to be dealt with - and soon - but do make
sure that it's being handled by someone who is taking the
whole picture into consideration - taxes, asset allocation,
your plans and risk tolerance.
--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting |
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| kastnna |
| Posted: Fri Jun 29, 2007 5:43 pm |
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On Jun 28, 3:38 pm, hobno...@webtv.net (H B) wrote:
Quote: But to me mutual funds are stock, which I
don't really want. In my old age I hope to have safe as possible
investments.
You're doing well so far, but you need to change that mindset.
That's like never going to the beach just because you don't want to
eat seafood. Yeah there's a lot of seafood at the beach, but there's
so much more than that. That may not be the strongest analogy, but I
hope you get the point.
There are a lot of mutual funds that don't hold a single stock in
them. Don't let a great investment pass by because you have a
preconcieved (and erroneous) conception of the "type" of investment it
is. |
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| Elizabeth Richardson |
| Posted: Fri Jun 29, 2007 6:48 pm |
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"H B" <hobnobre@webtv.net> wrote in message
news:20958-46840372-195@storefull-3274.bay.webtv.net...
Quote: In my old age I hope to have safe as possible
investments.
When you meet with the planner, be sure you have a complete understanding of
"safe" investments. Safe from what? Safe from the ups and downs of the stock
market, or safe from the ravages of inflation?
Being already retired, I suspect you and I are close in age. I know that the
biggest risk in retirement is inflation eating up the purchasing power of my
hard-won nest egg. Yes, I have some conservative investments, but I also
have quite a bit in diversified equity mutual funds. The conservative
cash-type investments are for money I'll need in the next few years, but the
equity mutual funds are for money I'll need several years from now. As time
marches on, I can move some money from equities to cash. You will quite
likely need both types of investments, too.
Elizabeth Richardson |
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