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Rollover into 401k


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If the ESOP money is all pre-tax (don't know why it wouldn't be) and the participant is allowed to take the distribution from the ESOP, then it should be fine. Two issues with rolling over after-tax money are that the 401(k) would have to allow it, and you'd have to track it separately from the pre-tax moneys (which is some extra work unless you're already set up for it).

If his former employer is about to make huge profits and raise the value of its stock through the roof, then he'd be better off leaving it in the ESOP until the share price is way up. If he simply wants to consolidate his retirement funds and/or wants to maybe reduce the risk of being invested in his former employer, then he may be better off (more comfortable, less worried, even if not necessarily richer, but maybe richer, too) doing the rollover. It kind of depends on why he's considering doing the rollover.

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It would take a crystal ball to know if it is better for him to take a distribution and do a rollover or to leave in the ESOP. Like GMK says, it depends on his risk tolerance and how risky the ESOP stock is. If you aren't a financial advisor knowledgeable about his goals and risk tolerance, I would suggest that he speak with one.

What I would make sure of is that he knows any distribution restrictions for the Rollover money once it is in the plan (if there are any)

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NUA issue is the only wild card here. If this person can take a stock distribution and NUA applies then they could be taxed at cap gain rates. If you roll over to a plan or IRA you lose that. There can be times where taking the tax hit now makes sense.

Otherwise there is nothing about ESOP money that makes it harder to rollover then other types of money from qualified plans.

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