Company shares out of 401K into IRA & Brokerage

Hello Folks,

Situation: Old Employee Stock Matching program consisted of after tax company stock purchase with company match (pre-tax). This was discountued in 2002 and all shares were rolled into our 401K. We have an option to move the shares out under the old program by end of month since we are being divested from mother company.

I want to move my after tax shares to brokerage account (etrade) and pre tax shares to an IRA. I understand to do this my company will issue the stock certificate to an IRA for my contributions and company match as one entity. Not clear on how to execute all this and steps to take to seperate without issuing tax/penalty event?

I have talked to a CFP and he said they will handle it if I open up brokerage account and IRA with them. I would rather just use my eTrade brokerage account and setup a eTrade IRA.

Any guidance on how to execute this would be helpful.

Thanks.



You cannot utilize NUA unless you take a LSD from all plans of your company including the 401k. While this may well not even be possible, you did not mention consideration of NUA for the company shares.

The other option that many people would pursue in this situation when NUA is not being applied is to “isolate the basis”. Doing that would allow you to roll the pre tax amount to a TIRA and the after tax amount to a Roth IRA. You could sell the shares and diversify in both IRA types to cut the risk of holding large amounts of the same stock. There would be no taxation of this distribution, but you have to be careful how you do the rollovers. I will not get into that unless you are interested in getting the after tax amount into a Roth IRA.

If you are not considering NUA, the only other reason to move shares into a taxable brokerage account would be to sell them for current and future spending needs.

What is your plan for the after tax shares?



Thanks for the reply. After tax shares into brokerage account for flexibility for future spending, etc.. Company match shares (pre tax) into IRA.

Just not sure step to execute… company will issue all shares at once to an IRA account and will not split pre/post tax shares. Any help how to execute would help.



All you should need to do is request a direct rollover of shares equal to your pre tax amount to your TIRA account. A 1099R will be coded G to show a direct rollover.

The after tax value of shares should just be tranferred to a taxable brokerage account. This would be reported on a different 1099R. There would be no tax or penalty. The cost basis for these shares in the brokerage account would be their value on the date of distribution (ie divide the 1099R total for this portion of the distribution by the # of shares and that produces the cost basis per share for reporting when you sell the shares.



Thanks again. Company will only distribute to 1 account, but will issue certificate too. So think I can rollover pre tax shares to Ira, post tax shares certificate mailed to home then I will add to brokerage account.



That will work.
By law, the plan must offer a direct rollover to an IRA. You can receive the after tax amount (shares) and deposit them into your taxable brokerage account. You might have a small taxable amount depending on how the after tax basis matches up with however the plan deals with partial shares.



Done deal. Thanks for your help.



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