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Rollover Question: Go Cash or Keep Shares?

Posted By Jim On 01/17/2007 @ 11:48 am In Investing,Personal Finance,Retirement | 5 Comments

I just completed the rollover process with my old employer’s 401(k) plan and despite its attempts to use ridiculous acronyms to confuse me, I was successful in getting them to cut me a check (made out to Vanguard) that I will send off to those folks as soon as I get it. One of the questions that I was asked along the way was whether I wanted shares or cash because a portion of my funds were in a company stock fund, which meant that on a rollover I could opt for either shares of the company or just cash. I chose cash – here’s why.

Now that I have a choice… would I still invest? Many employees find themselves forced to invest in the company they work for with either limited 401k options or stock purchasing programs, which means they didn’t willingly invest in the company after evaluating their options. I did have a choice though I found out a few months in that any time you transferred money into the company fund, you couldn’t transfer it out (other divisions in the company did not have this restriction). I don’t begrudge them for this as I should have known and it wasn’t that much money anyway. Either way, I felt that I left the company for a reason and I was rolling my funds out for a reason, so why not just cut the financial ties and move on.

Some institutions won’t roll over shares. Some institutions, and I’m not sure where Vanguard stands on this, won’t accept a roll over of shares and will only deal with cash. I never researched whether Vanguard would accept shares, by opting for cash it wouldn’t really matter either way.

Cash means a check is sent within 2 business days, shares means it will take up to 2-3 weeks to register the shares in your name. I’m a patient enough investor to know that 2-3 weeks isn’t a long time but I’m so a realist and I recognize that a lot of things can happen in 2-3 weeks (including memory loss) and that it isn’t really worth it to go through the trouble just to keep the shares (which don’t amount to much anyway).

Tax considerations… were not a factor for me since everything was in a tax-deferred account but they may be for you. If you keep the shares in your name, you don’t have to pay taxes on the gains until you sell. If you liquidate, you pay taxes immediately. Depending on when the shares were purchased, this can be a significant difference.

Ultimately, I went with the cash, if you couldn’t tell, mostly because I did not have a compelling reason to hold onto the shares. If I really wanted to get the shares, it would’ve been a mere $20 (Vanguard is expensive when it comes to trading) to change my mind.


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