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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75381  
Subject: Re: Early Retirement Package Date: 8/24/1999 10:10 AM
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Greetings, BP, and welcome. You wrote:

<<I am about to take an early retirement (at age 55+) from my employer, but plan on continuing my career and building a second retirement in about five to seven years. My employer provided me with a savings and investment plan which consists of before-tax (401(k)) contributions, matching funds from the employer (mostly used to purchase company stock) and after-tax savings.

I am at the point in time where I wish to take control and invest all of these Foolishly by investing from a self-directed IRA (tax-deferred funds) and a regular investment account (after-tax). I plan on taking distributions from all accounts after my eventual second retirement.

I am a little confused as to the lump-sum tax ramifications on this plan mix. Some is in a well-performing indexed fund, some in company-contributed stock (as Tom and Dave say, "Free Money") and some in "post-1986 Basis" funds. How does one direct the proceeds from such a managerie keeping the best tax strategies in mind?>>


All the pre-tax money in your plans will be transferrable to an IRA. Whatever it's invested in now will be cashed out. The cash will be sent to whatever IRA you choose and may be invested within that IRA as you see fit. You will almost certainly be given the option to take the company stock in whole shares. Those may be transferred to a brokerage IRA to continue the tax deferral or you may have them issued to you. If issued to you, you will have to pay income tax on the cost of those shares (but not on any gain since purchase) at the time they were bought. The plan will tell you what the cost basis is. Afterwards, you may sell those stocks and only pay income taxes at the capital gains rate. If the shares go into an IRA, then when you sell them to take a distribution from the IRA everything gets taxed at ordinary income tax rates. Any after-tax money in your plans may not be transferred to an IRA. You will receive any after-tax money from the plan(s) free of tax and can do with it what you wish.

Regards..Pixy
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