Personal Finance Advice

Unless there is a strong reason to transfer it out, you can leave the money in the 401(k) account and let it continue to grow. You will likely want to change the investment strategy to be more conservative (more bonds/fixed income; less stocks). So long as your wife meets the minimum age (62, I believe) she can take regular deductions and avoid any major tax hit.

First, and most importantly, read up on “net unrealized appreciation”, for example:

http://money.cnn.com/2005/12/22/pf/expert/ask_expert/index.htm

I’m a long ways from retirement, and don’t have any employer stock in my retirement accounts, but I would think that the best approach is to:

1) rollover the 401k into a traditional IRA (should incur no tax penalty)

2) Use NUA to transfer the employer stock into a regular brokerage account, for which you’ll pay ordinary income tax on the contributed value and long term capital gains on the appreciated value.

The tax savings over transferring everything to an IRA, then paying ordinary income tax on withdrawals, will likely be substantial (depending of course on how much of the employer stock is appreciation versus cost basis).

…but what about if you’re nearing 70 1/2, and don’t need to live off of mandatory IRA distributions, since SS and income from taxable accounts provides enough?
Someone advised me that it’s better to start converting some of the IRA to a Roth IRA before 70 1/2, to minimize the mandatory IRA distribution while allowing your money to accumulate tax-free; however, you’ll have to pay income tax on the converted $, which might be substantial depending on the amount.
Anyone else have any ideas for what to do with mandatory IRA distribution money?

The first thing is that I fully agree with Samerwriter who recommended that you read up on “net unrealized appreciation.”

The reason is that your wife has a third of her retirement funds tied up in a single company. That is way, way, way to must and very, very risky.

The next step is to look at your total asset allocation to ensure it is in the right mix for both of you. In order to do this you must consider all investments. There are a number of web sites, and Morningstar is a good place to start.

Then if you are happy with your asset allocation and you can reach that allocation with a good mix of funds with below average costs, she can leave the funds at her old company.

That said, keeping funds in a 401(k) does generate some limitations. If you have no children then this is not a big issue. If you have children, then moving the funds into an IRA with you as the beneficiary and your children as contigent benifiaries could provide a substantial amount of additional flexibility in the case of the demise of the two of you. The children would be able to stretch the IRAs out over their lifetime, which is not an option if they inherit 401(k) assets.

If she decides to move the funds to an IRA, then I highly suggest Vanguard – rock bottom costs, free financial planning advice which comes with the large amount of money she will be transfering, and solid performing mutual funds.

However, most important – get rid of the vast majority of the company stock – there is way to must risk in that large of percentage in a single company – even if that company is the greatest on the planet.