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Roth 401k and Stock Options
Benefits & Compensation
Roth 401k and Stock Options
Exchange ideas about health plans, retirement, work/life benefits, and employee assistance.
Anyone have any experience with allowing employees to purchase privately held stock (or stock options) in a Roth 401k?
My CEO believes it's doable, though information I have been seeing suggests ot
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Forums » Topic Forums » Benefits & Compensation » Roth 401k and Stock Options
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Roth 401k and Stock Options
posted at 10/27/2009 1:51 PM EDT
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Posts: 31
First: 8/4/2000 Last: 7/8/2011 |
Anyone have any experience with allowing employees to purchase privately held stock (or stock options) in a Roth 401k?
My CEO believes it's doable, though information I have been seeing suggests otherwise. Tnx. Bd |
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Roth 401k and Stock Options
posted at 10/28/2009 4:24 AM EDT
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Posts: 2146
First: 2/15/2006 Last: 9/14/2011 |
Is the stock one of the investment options? I don't see how the employee could buy it at a reduced price if all employees aren't also allowed to buy it at the same price.
One thing to look at is a Stock Purchase Plan. The employee puts aftertax money into a savings account with the employer each paycheck. At the end of the plan year, the employee is allowed to buy stock with that money at a reduced price. Our formula (years ago) was 85% of the lower stock price on the first and last day of the plan year (Oct 1 - Sept 30). The employee could immediately cash out on Sept 30th and receive a 15% increase of funds minus the trade fee OR keep the shares and avoid short term capital gains. This program was open to ALL employees though. Another option is to see if your 401k plan offers plan loans and allow the employee to take a loan out of the 401k to purchase the stock options. But this would be subject to plan loan provisions. Either way though, the employee would be taxed on the earnings from the options as soon as they were sold -- which I suspect is the reason the employee wants to go through a Roth -- to eventually get the earnings tax free. |
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Roth 401k and Stock Options
posted at 10/30/2009 1:44 PM EDT
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Posts: 2442
First: 2/12/2000 Last: 9/14/2011 |
This just does not sound like a good idea. Here are a couple of the reasons:
1. Private company stock-who decides what the fair market value of the stock is? When is it valued? How do you cash in when you leave? based on what value? 2. If you think stock is tough options are even more complex. Should never be in a 401(k) 3. Why would this be suggested as a plan option? who owns the private stock that is going to be bought? Could this be the person making the recommendation? arms length transaction? Transaction with a plan fiduciary? STAY AWAY from this idea. |
Forums » Topic Forums » Benefits & Compensation » Roth 401k and Stock Options
