Delaying the IRS?

[DavidSB1950]

My wife will be retiring from a blue-chip mega-corp in about 3 years. She has accrued about 700K in retirement lump-sump value and about 400K in the company "matching" stock plan for a total fund of 1.1M.

My question is; when she retires, can we transfer the lump-sum retirement and the stock plan to a money management firm for investing in various mutual funds w/o getting skewered by the feds?

I know we have to pay taxes if we withdraw from the retirement fund for our personal use, but do the feds hit the fund when it's transferred from one company saving plan to another private saving plan?

I'm an engineer, so all you tax accountants go easy on me and dont make me look like too big a moron!

[sweeps]

Re: Delaying the IRS?

You should be able to roll over the money to a rollover IRA without incurring a tax hit. Be sure to make a direct transfer, do not take possession of the funds yourself. Also be sure to keep pre-tax and post-tax funds separate. With that much money you'll be able to get personal assistance in the transfer whereever you decide to put the money.

[terry1156]

Re: Delaying the IRS?

Sweepsplayer is correct. Be sure that you transfer it to another retirement account and don't take possession of it and there shouldn't be any tax consequences at this point. Congratulate yourselves on building a nice retirement nest egg.

[DavidSB1950]

Re: Delaying the IRS?

Thanks gang. I guess it answers my question. I wanted to transfer it to a Mutual funds account because of the significantly larger interest, but I guess I'll have to transfer it to a IRA at less interest to avoid the taxes. I wanted to get closer to 10% rather than 6%. Any recommendations on IRA accounts?

[poundwise]

Re: Delaying the IRS?

Thanks gang. I guess it answers my question. I wanted to transfer it to a Mutual funds account because of the significantly larger interest, but I guess I'll have to transfer it to a IRA at less interest to avoid the taxes. I wanted to get closer to 10% rather than 6%. Any recommendations on IRA accounts?

Not sure I understand your wording. You say that you'll have to transfer it to an IRA instead of a mutual fund? An IRA is simply a designation given an account. The investment then is comprised of one or more of the following: mutual funds, stocks, bonds, CDs, T-bills, etc.

Perhaps this link/article will help.

[autoxer]

Re: Delaying the IRS?

There may be some big tax advantages to roll the company stock into a taxable account, while rolling the rest of it into an IRA, especially if you are old enough to avoid the early withdrawal penalty. When taking a distribution from the company stock you pay capitol gains tax on the basis, but if the amount was rolled over into an IRA, you would pay income tax on it's appreciated value. It's a good strategy if the stock has appreciated significantly, but check with a CPA to review your options. Ask them about Net Unrealized Appreciation.

http://www.smartmoney.com/ask/index.cfm?story=19990907

[DavidSB1950]

Re: Delaying the IRS?

This shows how ignorant I am in money matters. We always just saved thru the company. I had been told that mutual funds did not recieve a designation of an IRA. And that only certain low interest accounts could qualify as IRAs. I wanted to transfer the money to the Fairholme Fund w/o being taxed and only draw out as we needed it. The fund has had a 7 year average of 18% return and I was told that that may now qualify as an IRA.

[DavidSB1950]

Re: Delaying the IRS?

now*=not... sorry

[autoxer]

Re: Delaying the IRS?

I had been told that mutual funds did not recieve a designation of an IRA. And that only certain low interest accounts could qualify as IRAs.

That's not how it works. You open an IRA account (because of the tax advantages), then you deposit money & you can buy all kinds of mutual funds, stock, cd's, bonds.

I wanted to transfer the money to the Fairholme Fund w/o being taxed and only draw out as we needed it.

You will still have to pay income tax on what you draw out, but you can avoid the early distribution penalty if you are older than 59 1/2.

The fund has had a 7 year average of 18% return and I was told that that may now qualify as an IRA.

That is an impressive return, but past returns don't guarentee future returns. I don't see any reason why you couldn't open an IRA, then buy FAIRX funds, but check with the brokerage that you choose to handle your account.

[sweeps]

Re: Delaying the IRS?

Another comment: Be sure to diversify out of the company stock. Having 35% of your nest egg in one company's stock is not wise.

[DavidSB1950]

Re: Delaying the IRS?

Thanks so much for explaining it to me. I do want to diversify and unfortunatly, I will be of the correct age LOL. I now see that an IRA is a "holding account" that I can direct investments from. That is EXACTLY what is want. I agree w/ cutting back on the company stock.

Thanks Again for explaining it to me in basic terms

[greedy4chips]

Re: Delaying the IRS?

I believe you can each take a 1-time tax deduction of $650,000 to $700,000 each. At that point you could put the money in to tax free investments.

I could be way off on this advice, but I vaguely remember hearing something similar to this when someone had a 3 million dollar piece of property near Milwaukee to sell and wanted to avoid the taxes.

[JBinKC]

Re: Delaying the IRS?

The retirement plan definitely can be rolled over into an IRA. Regarding the stock plan which I am assuming is just an incentive plan and not tied to a retirement plan I would probably try to time the sale into the 2008 -2011 time frame when the capital gains rates are lower and assuming the stock price has been fairly stable or in an overall up trend .

[DavidSB1950]

Re: Delaying the IRS?

The stock is XOM (Exxon-Mobil) and has been in a steady rise and will undoubtably continue as long as alternate energy isnt explored. And if Alt Energy is developed, chances are Exxon will own it too. Unlike Enron, it's not going belly-up anytime soon.

Timing of the stock transfer is July 2009 at which time we will redistribute using an IRA (if I'm understanding correctly) to various stocks and Mutual funds. I dont mind paying the IRS but only if I'm withdrawing the funds for personal use. I dont want to pay because I'm moving money from stocks, to bonds, to mutual funds, etc.

[creditcardfree]

Re: Delaying the IRS?

You are getting it right.

As long as the account you have is titled John Doe IRA, you can move the money around tax free. You may start out at Vanguard investing your IRA in a mutual and later decide to invest in stock somewhere else. As long as both accounts are titled as IRA's you will have no taxes. This is simply a transfer of your assets. In fact, at most mutual fund companies you fill out a transfer of asset form in order for it to be processed.

Good luck.