Ask Terry Questions Stock value contributed by a previous employer

Stock value contributed by a previous employer

By Terry Savage on July 13, 2019 | Financial Planning / Retirement

This is lost money that I never knew I had ( $11K ), it was contributed by my previous employer. I’ve been told if I cash out and use the current value of the company stock I would incur penalties and fees since I’m currently not at retirement age. I could really use the money as a down payment on a new vehicle, ( I have two that are really long in the tooth – 12 & 13 years old ) but I really want to weigh out all my options. Typically, what penalties and fees would I see if I do cash out, instead of rolling the value into a Roth or a 401k?

Terry Says

Oh don’t cash this account out!  It’s not just the money and the current taxes (pluys a 10% penalty if you’re under age 59-1/2) — but the real shame is losing all the future tax-deferred growth of that money! 

Will the company let you roll the value of the account into an IRA?  If so, that’s your best move — UNLESS, this stock might fall under a provision that lets you claim capital gains taxes on it after withdrawal at retirement.  (Remember, all money taken out of an IRA is taxed at ordinary income tax rates, which may be far higher.)  Ask about this capital gains possibility first.  Of course, hanging on to the stock might have its own set of risks, depending on the future of the company.

But if that’s not a possibility, and if they will let you do a rollover, contact Fidelity or Vanguard and have them contact your company trustee and handle the DIRECT ROLLOVER.  That way, you won’t pay taxes or penalties until you take the money out at retirement.   Think of it this way, your old cars will be in the junkyard by then — and you’ll be enjoying the money!

Recent Financial Planning / Retirement Questions



a personal
finance question