The IRS must have read my last blog, for they issued a ruling on Wednesday allowing 401(k) participants with at least 3 years of service to diversify their company stock no less than quarterly.
My blog on May 24th noted that it is dangerous to allow too much of your portfolio to be invested in one company, especially the one you work for. The risk of having so much of your retirement money dependent on what happens with one stock is great. In addition, the financial stability of the company can affect not only your investments but also your current income (if the company loses money, you could lose your job) and thus your ability to save for retirement.
The IRS ruling says that companies must allow employees with 3 years of service to sell company stock and reinvest the proceeds into at least 3 other investment options, and they must be allowed to do this no less than quarterly.
Actually most large companies already offer this option. The problem is that many employees don’t take action. According to Hewitt Associates in a study of about 3 million 401(k) participants, 13 percent had half or more of their 401(k) invested in employer stock.
If you own company stock in your retirement plan, be sure to limit it to 5% of your total portfolio (that includes money in other accounts earmarked for retirement.)
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