If you have been afraid to open your 401(k) statement for the past few months, now is the time. Open it. Read it.
While this is sound advice for everyone with a 401(k), it is critical for workers whose plans include a company-stock option. "In addition to tremendous exposure to company stock in their 401(k) plans, many people have stock options, so their financial security -- even their employment -- is all based on the success of one company," warns Mark Cortazzo, senior partner of the Macro Consulting financial-planning group, in Parsippany, N.J. "If there is a significant downturn in business, the value of the stock goes down, the equity of their options disappears, their retirement savings are decimated, and they could become unemployed."
Overdosing on employer stock seems to be an occupational hazard for employees of big firms. Company stock represents more than 40% of all assets in 401(k) plans with 5,000 or more participants, says David Wray, president of the Profit Sharing/401k Council of America. In smaller plans, it accounts for only about 9% of assets. About half the large companies that offer their own stock as a 401(k) investment option also use it to match employee contributions.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Although some firms restrict the ability of employees to sell shares received as matching contributions, you always have the right to sell company stock you purchased with your own money.
Remember that there are no tax consequences for sales inside a 401(k). If you decide you have too much company stock, you can sell your shares without worrying about capital-gains tax on any profits.
There are no hard-and-fast rules on how much company stock is too much. Some advisers think company stock should not constitute more than 10% of a 401(k) account. Dee Lee, a financial planner and author from Harvard, Mass., is more liberal. But, she says, "if you have more than 25%, that should be a red flag."
-
Timeless Trips for Solo TravelersHow to find a getaway that suits your style.
-
A Top Vanguard ETF Pick Outperforms on International StrengthA weakening dollar and lower interest rates lifted international stocks, which was good news for one of our favorite exchange-traded funds.
-
Is There Such a Thing As a Safe Stock? 17 Safe-Enough IdeasNo stock is completely safe, but we can make educated guesses about which ones are likely to provide smooth sailing.
-
Farmers Brace for Another Rough YearThe Kiplinger Letter The agriculture sector has been plagued by low commodity prices and is facing an uncertain trade outlook.
-
The U.S. Economy Will Gain Steam This YearThe Kiplinger Letter The Letter editors review the projected pace of the economy for 2026. Bigger tax refunds and resilient consumers will keep the economy humming in 2026.
-
Trump Reshapes Foreign PolicyThe Kiplinger Letter The President starts the new year by putting allies and adversaries on notice.
-
Congress Set for Busy WinterThe Kiplinger Letter The Letter editors review the bills Congress will decide on this year. The government funding bill is paramount, but other issues vie for lawmakers’ attention.
-
The Kiplinger Letter's 10 Forecasts for 2026The Kiplinger Letter Here are some of the biggest events and trends in economics, politics and tech that will shape the new year.
-
Special Report: The Future of American PoliticsThe Kiplinger Letter Kiplinger assesses the political trends and challenges that will define the next decade.
-
What to Expect from the Global Economy in 2026The Kiplinger Letter Economic growth across the globe will be highly uneven, with some major economies accelerating while others hit the brakes.
-
Shoppers Hit the Brakes on EV Purchases After Tax Credits ExpireThe Letter Electric cars are here to stay, but they'll have to compete harder to get shoppers interested without the federal tax credit.
