Question: How can I handle my 401(k), especially the shares of company stock that are in my account, so I don't get hit with a whopping tax bill? I'll eventually want to sell these shares.

Jim Raleigh

Answer:

Dear Mr. Raleigh,

Your question should be addressed by the benefits officer at your company. However, I can give you some general points to keep in mind - and to ask him or her.

One. In most cases, one must pay income taxes on withdrawals from a 401(k) retirement account. And that includes company stock held in the account.

Two. If, however you are already retired (and if not, when you do retire), you can roll over the entire account into another tax-advantaged account, such as an Individual Retirement Account (IRA), here at BUYandHOLD.

Three. If you then move your company stock into a separate taxable account, you will owe income tax only on the cost basis of the company stock.

Four. If you keep the company stock in the new account for one day over a year prior to selling it, your tax rate will be a more favorable one. In other words, you will wind up paying the lower long-term capital gains rate on the amount the stock has "gained" or appreciated. On the other hand, if you sell your company stock prior to holding the shares for a year, you'll be facing a higher tax rate on the gain.

Caution. If you are under age 59 ? this may not be such a great idea. That's because you will owe the IRS 10% of the total amount in the account in order to meet the required early withdrawal penalty.

Bottom line: If after discussing this with your benefits officer or an accountant (or both!) and you decide to rollover your 401(k) to an IRA here at BUYandHOLD, paperwork is available online to facilitate this move. The process will be relatively painless since you already have an account at BUYandHOLD.

Good luck!