Adam Frank

Managing Director, Head of Wealth Planning and Advice, J.P. Morgan Wealth Management

Whether you’re retiring, finding a new job or taking time off, consider the following to help make the transition easier.

Retirement assets

If you have a qualified retirement plan account through your employer, such as a traditional or Roth 401(k), a profit-sharing plan, or a SEP or SIMPLE IRA, generally you can roll your account into an IRA when you leave your company. This is one of the most common choices that employees make with their retirement plans from former employers, though there are others as well.

Do you own company stock in your 401(k)?

Generally, if you transfer your 401(k) – including your company stock, if any – into an IRA, the transaction is tax-free. When you later take distributions from the IRA, they are taxable at your ordinary income tax rate based on the then-current value. However, for any of your company stock in your 401(k), you may be able to take advantage of a strategy called “net unrealized appreciation”, allowing you to apply potentially lower capital gains tax rates to the gain in the company stock that you own in your 401(k).

Here is how it works:

  • When you leave your job, you might consider taking a distribution of your company stock out of the retirement account and transferring the stock to a taxable account. At the time of distribution, only the stock’s basis, generally its cost, is included in your ordinary income.
  • When you ultimately sell the stock, the difference between the basis and the then-current value of the stock may be taxable at long-term capital gains tax rates rather than ordinary income rates.

This strategy won’t work in every circumstance, but it is possible to save a significant amount of tax if the circumstances are favorable. Consult with a tax professional if you have company stock in your current employer’s 401(k) plan, to see what might make sense in light of your own facts and circumstances.

Other company securities (options, restricted stock, performance shares)

If your company gave you stock options, restricted stock or other securities that are subject to vesting or expiration, it is important to understand your rights and responsibilities. Leaving the company could trigger additional vesting or early expiration. Know your deadlines and consider whether you may have an opportunity to change expiration deadlines or extend vesting of unvested awards.

Insurance coverage

If you were covered by a group life or disability insurance policy through your employer, check your outside coverage as well as coverage at your new employer. You may want to review or initiate private coverage as well as employment-based coverage for yourself and your family.

Similarly, if you were providing your family with medical insurance, make sure you coordinate with both your former and new employer, if applicable, so that you don’t experience a lapse in coverage. There may be a period of several months before your new insurance will cover your family.

Contact a J.P. Morgan Advisor to learn about additional options and factors to consider.

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