rolling over ESOP

[tabbycat31]

ok I have about $800 in a stock plan with a company I used to work for. The stock is not doing too well this year, and I'm wondering what my options are when it comes to getting it out of that account and into a better performing one.

I have no immediate plans for the $$ and I'd like to use it for a retirement acct.

[Ima saver]

Could you use it to open a roth ira?

[tabbycat31]

I have a Roth in place for 2006 that is maxed out (I used a bonus and my tax refund to fund it). I could see if I could put it away for 2007.

I did not pay taxes on this money though.

[disneysteve]

Is the stock held within a retirement account like a 401k?

[kristinecfp]

Contributions to ESOPs are tax deferred, similar to a 401K plan. If you are under age 59 1/2 you will pay tax on any distributions you receive, plus a 10% penalty. To avoid the tax and penalty, you should roll the account into an IRA. You can't roll the ESOP directly to a Roth IRA, but you can convert to a Roth after you've rolled the ESOP to a traditional IRA (assuming you meet the income and other requirements to convert to a Roth).

As far as how to invest this money, you should review your portfolio to see if you are allocated properly for your age, time frame, goals, risk tolerance, etc. Once your asset allocation is determined, then you should consider low-cost, no commission mutual funds that are appropriate for you. However, you will have to do some research to find a fund with a minimum under $1,000. If you don't already have an IRA that you can roll this money into, you may want to consider exchange traded funds (ETFs) instead of mutual funds to get around the fund minimum. A great website to research mutual funds and ETFs is www.morningstar.com.

[disneysteve]

Originally Posted by kristinecfp

Contributions to ESOPs are tax deferred, similar to a 401K plan. If you are under age 59 1/2 you will pay tax on any distributions you receive, plus a 10% penalty. To avoid the tax and penalty, you should roll the account into an IRA.

In that case, I agree 100%. If the money is already in a tax-deferred account, you want to keep it that way, especially since you intend this as retirement money. Roll it into an IRA.