Employee Stock Plan Procedures to Rollover IRAs

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When you leave your job, one of the first things you need to do is decide how to handle the retirement plan your former employer provided. That means rolling over your 401k money into an IRA that you can control. If your 401k plan included stock in your company, you might be able to move those shares in-kind, rather than selling them and moving the funds into your new IRA.

New IRA

When you move money from the mutual funds and employer stock in your 401k, it is a good idea to set up a new shell IRA account first. Setting up a new IRA account rather than commingling the funds makes it easier to track the performance of the funds as you move forward. You can set up that shell account with the mutual fund, bank or brokerage account of your choice, then contact that firm and ask for the transfer forms you need to move the money from your 401k.

Employee Stock Purchase Plan

If you have an Employee Stock Purchase Plan outside your 401k, you do not need to roll that money over. Typically the ESPP is administered by a brokerage firm or investment bank, and those funds can simply remain where they are. If you want to sell the stock you own and take the money you can, but that money does not become part of your IRA rollover.

Employer Stock in a 401k

In some cases employees are allowed to invest part of their 401k money in the stock of the company they work for. If your 401k does contain shares of company stock, you can choose whether to bring those shares into your rollover IRA. If you do want to bring those shares directly into your rollover IRA, you need to inform both the 401k administrator and the new IRA administrator of that desire. If you prefer, you can sell the shares of employee stock contained in your 401k and simply bring the cash into your rollover IRA. Since the account is tax-deferred, there are no tax consequences to this type of sale.

Review the Transfer

It is very important that a rollover from a 401k to an IRA be handled as a direct rollover. If the money does not go directly from one administrator to another, that could trigger a tax that could eat up a great deal of the money in the account. Once you start the transfer process, you need to check up on it to make sure it is completed on time. You can contact the administrator you chose for the rollover IRA and ask about the status of the transfer at any time.

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