In article <ade99250c6fe8b181d1ac75545d6c50a[at]localhost.talkaboutinvestments.com> , "Pepperl" <hayneskay[at]yahoo.com> wrote:
- quote -

I have had several employers, and always rolled the 401k into my self directed
IRA. For me, I like the flexibility of the IRA, and having all funds in a
single account.

I had some adventurous co-workers who liked to jump in and out of the company
stock,trying to catch short-term gains. One possible benefit of staying with
the 401k is if you can buy/sell the company stock with no commission (assuming
you want to do this type of activity).

Pepperl wrote:
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Just to address one aspect of this: "company stock" and "rollover IRA"
sets off a red flag for me too but for different reasons. I'm assuming
that's ESOP company stock in your 401k and if so, you could do some
tax-harm by rolling it over to an IRA. It's important to take a look at
that part of the question separately to decide the best course of
action, irrespective of whether you plan to sell or hold that company stock.

Here's how it works, using an extreme example...let's say your average
cost on Employercorp stock is $1 per share and you own 5,000 shares. The
current price of the stock is $25/share, meaning you have an unrealized
gain of $120,000.

Now you could roll that stock over to an IRA, sell it, and defer the
gains until you eventually begin taking withdrawals...and that may be
the best choice. But when you take distributions from an IRA, they're
taxed at "ordinary income" rates, meaning the same tax rates applied to
salary, wages, interest, etc. That can be one down-side of an IRA, it
turns long-term capital gains on stock into higher-taxed ordinary income.

Alternatively, you are allowed to distribute that stock from the plan,
under special rules that apply to that type of plan. The only tax at
distribution will be on the basis of the shares, i.e., $1 x 5,000 =
$5,000 - NOT the full $125,000 value. The "net unrealized appreciation"
(key tax jargon here, good term to google) is not taxed at distribution.

When you sell the stock, you're taxed on whatever gains there are, but
they are taxed at the capital gains rate (currently 15% federal plus
your state tax). Depending on your overall tax situation, and likely tax
bracket during retirement, this could be a significant advantage. You
need to weigh the benefits of deferral, in the IRA, vs. the lower tax
rate, from selling the shares outside the IRA.

If the company stock is a small holding...well this is all much ado
about nothing...

-Tad

Pepperl, are you comfortable choosing mutual funds and/or
stocks held within a Traditional IRA? Do you know how to
allocate your investments? Do you have the time to do so? If
so, then rolling the 401(k) into a Traditional IRA is very
likely going to make you more money in the long run. Also,
as Sandra said, subsequent to such a rollover, if you wish,
you can convert the traditional IRA to a Roth IRA, which is
in fact advantageous for many people, even folks age 60+. (I
echo the rest of Sandra's comments as well.)

"Pepperl" <hayneskay[at]yahoo.com> writes:

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Sounds like you have two decisions to make.

(1) Asset allocation. "Company stock" kind of sets off red flags for
me. Ever heard of Enron? If you have more than, say, 5% of your
assets in the stock of any one company, you should consider swapping it
for a diversified equity fund instead. Which brings us to...

(2) Are you happy with the investment choices offered by your 401(k)
plan? Are they good quality funds with low fees? If yes, unless you
have some pressing issues with their web site or customer service,
there's no real point in rolling over to an IRA, unless you want to
do a Roth conversion.

-Sandra

The answer is a bit complicated. It is also rather common so others
have worked through the issue. I expect there should be some
interesting comments.

My personal perspective and I am not retired.

1. How is the 401K doing? If the investments and the choices are
working then maybe you stick with it. Costs are also a factor (the
running costs, the costs to move and the running costs of the
alternative selected if you move).

2. Your personal goals and your situation? At what rate do you want to
withdraw the funds? If you do not need to withdraw the funds and expect
to never need them (you have other sources) then what is the tax
implication when you hit 71? Would some form of Roth be a better
structure?

3. Alternatives? If you move you have to move to something else. Some
IRA allows you more flexibility (self-directed IRAs). Others are run by
trustees that might have products you like better.

There is no absolute answer in most cases. As time passes things could
also changes so think about capturing how you make the decision this
time around and expect to repeat the process every so often.

John Corey

I retired last June. My 401K from my company is doing well. It includes
company stock, a blended mutual fund, and a bond fund. I'm not sure if I
should leave things as is for awhile, or roll it over into an IRA. I'm 63.