From
Your Perspective:
Making sense of your 401(k) investments
Company stock
If you work for a
publicly
traded corporation,
the list of investment choices in your
401(k) plan may include the opportunity to buy company stock or
put money into a company stock fund.
You may even find there are incentives to encourage
you to make this choice. For example, you may be able to purchase
the stock at a price that’s lower than the current market
price. Or, you may be able to put in a higher percentage of your
pay if you choose company stock. And, in certain instances, the
amount you choose to invest in company stock can determine the
percentage of employer match you receive. In fact, some employers
make their entire match in the form of company stock instead
of cash.
If the company
stock in your 401(k) account increases in value, you
may be able to postpone paying tax on the gain by
withdrawing the stock from the plan rather than moving
it to an
IRA
with your other plan assets. If you take the stock
out, you owe income tax on only its value when it
was added to your account, not on any increase in
value. You owe no additional tax as long as you hold
onto the stock. And when you do sell, you may be eligible
to pay tax on any increase at the lower capital gains
rate. But the rules are tricky so be sure to get expert
professional advice.
You already depend on your employer
for your income, and if you have a
defined
benefit plan
in addition to your 401(k), your
employer also provides part of your retirement income.
In the worst possible circumstances, you may not only
be out of a job, but the portion of your 401(k) that’s
invested in company stock may lose its value.
