401k Questions

[mrpaseo]

In reviewing my DW's 401k options, I found that she has the option to invest in company stock. Normally I would stay clear of stock (Especially company stocks) but looking at the track history (10 years back) they have been in double digit profit.

One of my questions is, when I look it up on the web site it has a share price of $48.XX and a Unit price of $33.XX.... Does this mean that she would purchase them at the lower price even though the market has them valued at $48.xx?

I was pleasantly surprised to find that she has 22 options to invest up to 75% of her income. We are looking to diversify the 401k to compliment our current retirement portfolio.

Any conversation would be great.

Thanks.

[disneysteve]

The general rule of thumb is that no one company should be more than 5-10% of your portfolio. Investing a portion of the 401k contribution (I'd go with no more than 5%) in company stock is okay if you want to go that route but I wouldn't do more than that.

[Goldy]

I'm not sure how your share program works but with mine I have a strike price that I can buy at which is often less than the current price. If that is the case with yours then I would say buy all you can and sell it asap. With that said, you need to know exactly how your plan works.

[disneysteve]

I'm not sure how your share program works but with mine I have a strike price that I can buy at which is often less than the current price. If that is the case with yours then I would say buy all you can and sell it asap. With that said, you need to know exactly how your plan works.

I would agree. If you can buy at a discount and then sell it freely, take advantage of that. Some plans, I think, require you to hold it for a period of time. That's when you need to be really careful.

[SeanH]

I would spend a lot of time thinking about the exposure you have to your own company. You already receive your salary from them along with your benefits. You may be receiving your company match from them in company stock. Last of all, when you purchase your own companies stock at a discount the tax implications become a little bit more complicated. The stock will usually be restricted and depending on the selling period you may owe taxes on the stock as if it was standard income. I make no claim to being a tax expert, but I know I jumped through some extra hoops when I sold mine and found out there were extra time periods I hadn't taken into account.

[silvor]

One of my questions is, when I look it up on the web site it has a share price of $48.XX and a Unit price of $33.XX.... Does this mean that she would purchase them at the lower price even though the market has them valued at $48.xx?

Likely not. It's setup like a UIT where it's a trust and you buy units that are invested in the stock. I HIGHLY doubt they are giving every employee a discount of $15 a share.

We have the same deal at my work and you are buying units of a trust.

What these guys posting before me are talking about are stock options. Again, highly unlikely everyone in the company has stock options, especially at such a heavy discount.

Why don't you call the plan admin and ask?

[SeanH]

As a small clarification, I worked for a privately held company which attempted to encourage stock ownership by allowing discounted purchases of company stock (I believe the discount was in the 10-15%) range.

[jpg7n16]

You should really check if in her plan she is buying the stock directly, or a "Company Stock Fund" - type investment.

It sounds like she's in the 2nd one, where there's like a mutual fund of company shares. Hence the difference in Share value and "Unit" value.


And I agree w/ DS's rec above about no more than 5-10% in company stock. Especially when it's the company you work for.

I mean if the company comes across hard times, now it's not just your job that's at risk, but your portfolio too. Who'd want that?

And something I hear all the time about this: "But I know my company is doing well. I work there." Yeah, that's what they said at Enron and GM. How'd that work out for them?