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Company stock & Retirement
Old 06-04-2011, 10:28 AM   #1
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Company stock & Retirement

Hi, I work for a privately held company and was just made a stakeholder. There is no match for a 401k, and I have historically contributed 15% to my 401k. Going forward, if I only have around 5k a year to invest in retirement outside of my corporate stock purchases should I do 401k or into a Roth Ira and why?

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Old 06-04-2011, 01:11 PM   #2
Recycles dryer sheets
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Maybe you should first ask yourself whether you want to be loading up on the stock of the company where you work, then worrying about 401(k) vs Roth.

Assuming you have already answered the first question in the affirmative (presumably you are getting a substantial discount to buy), then the 401 with no match vs Roth question comes down to (mainly): do you believe you will be in a lower tax bracket when you are withdrawing the money? If so, favor the 401. If not, favor the Roth. Another factor would be if you think you will not need to take distributions by 70-1/2 then favor the Roth for its no RMD policy.

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Old 06-04-2011, 01:29 PM   #3
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Originally Posted by JohnGalt View Post
Going forward, if I only have around 5k a year to invest in retirement outside of my corporate stock purchases should I do 401k or into a Roth Ira and why?
There is a separate thread on 401(k) vs. Roth so you might want to check that out.

Are the corporate stock purchases mandatory? If not, why are you buying this stock? You could have good reasons, but my view is that the threshold to buy (or hold) my employer's stock is far higher than for other investments because it is so highly correlated to the rest of my financial life (e.g. the risk of losing both my savings and my job in the event of catastrophe at the firm).
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Old 06-04-2011, 01:34 PM   #4
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Originally Posted by chemist View Post
Maybe you should first ask yourself whether you want to be loading up on the stock of the company where you work...
I agree.

Why would you want to take on "double risk", that is loss of your job (employment risk) and reduction in value of your company's stock (investment risk)?

I understand that you may be a supporter of your company, but you also have to protect yourself from possible impact from these two risks.

While receiving company stock (via profit sharing) during my employment years, I would wait the required holding period and then sell the shares and invest the proceeds in other holdings.

My BIL worked for a major (at the time) communications firm and retained his stock distribution, along with additional purchase of shares over many years. His intent was to use the proceeds to build a new home and to provide income for his retirement years. I'll let you figure out what happened to the company ... BTW, he also lost a good deal of his expected pension, since the check from the PBGC is much less than he was counting on.

Today, in his late 60's, he still needs to work (part time) to meet his basic needs, rather than be retired. The old saying about "putting all your eggs in one basket" certainly applies to in this case.
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