Employer Stock

Telling when to exercise your company stock options should be based on more than your gut about a potential market price peak. If the stock options you’ve received from your employer are burning a hole in your pocket, it may be time to get a second – or third – opinion before you cash in. Employees often believe they have the inside scoop on when the stock’s market price will top out, and that false sense of confidence can lead you to exercise too soon and regret it later.

This special consideration for employer stock held in 401(k) plans only applies to lump-sum distributions, but it could save significant income tax. Taxpayers may be overlooking an important break on income tax when they take a lump-sum distribution from a 401(k) plan.

Once a dot.com perk, stock options have become a portfolio component for many Americans. In the start-up frenzy of the dot-com era, many cash-challenged companies offered employees a piece of the future in lieu of current payroll or cash bonuses. That piece of the virtual profit pie – a stock option – had long been a method of compensation or bonuses for high-place executives.

Investing in company’s stock with in your 401(k) is admirable, but it doesn’t take much to get carried away.Corporate scandals like those of Enron, Tyco and WorldCom will eventually become a note in business history texts, but for many who lost considerable retirement funds, the results affected their lifestyle in retirement years and their ability to build an estate for future generations.