Options for Company Stock
If you've left your job, or are considering a departure, think twice before rolling over your company stock into an IRA, says tax expert Ed Slott.Skip to next paragraph
Subscribe Today to the Monitor
You might be able to take advantage of special tax breaks provided for folks whose company stock has sharply appreciated in value. In effect, you will wind up paying taxes only on long-term capital gains, rather than the higher income-tax rates that would apply if the stock were rolled into an IRA.
Your heirs could also benefit, if you leave the stock to them.
Here's how it would work: Put your company stock in a separate brokerage account, not an IRA. You will owe ordinary income taxes up front, based on the original cost of the stock when it was added to your retirement account. And later, when you sell the stock, you will pay the capital-gains tax on the appreciation.
The strategy is ideal for highly paid employees whose stock has shot way up in value, such as going from $10 a share to $100, says Slott. If you think it applies to your situation, you should consult a tax expert.