In this video we share with you the details of what’s going to happen specifically with your Valero Energy Corporation Thrift Plan, which we’ll refer to as your 401k plan, once you’ve decided to begin your life after Valero.
First and foremost, don’t make any changes to the investments in the plan. We’ve seen too many cases of refinery workers forfeiting some great opportunities, so many so, that we’ve produced a separate video titled “Preparing your 401k plan for retirement” which goes into those specifics.
Technically, there are four things that can happen with 401k assets after the employee moves on.
If you plan to spend it, you could simply cash out the whole thing, and pay the taxes all at one time. This option eliminates the benefit of tax deferral, an action most experts would avoid, but there are situations where it makes sense.
The other three options all maintain the tax deferral benefit.
You could transfer your account to a new employer’s plan, if they’ll accept it.
Leave it in the Valero plan, and manage the account yourself using the investment options allowed by the plan trustees.
Or, you can roll it into an IRA account which facilitates use of a professional wealth advisor and opens the doors to a full range of investment choice.
For the remainder of this video, we’ll assume you’ve created an IRA with Enduring Wealth Advisors® to roll the 401k plan and it’s been about two weeks since your last official day as a Valero employee.
Why two weeks?
Because that’s how long it usually takes for Valero to notify Merrill Lynch that you’ve separated from service, and now have the option to roll the account into an IRA.
We have a conference call, with you and a Merrill representative to explain to them what you want to do with the account.
But before making the call, we discuss with you what to do about any loan balances, after-tax money and company stock in the plan. Not everyone has all these issues, but most have at least one.
If you haven’t already paid off a loan balance, it cannot be transferred to the IRA, so it gets treated as a taxable distribution.
After-tax money in the plan can be taken as cash, set aside to help pay future taxes due to an NUA distribution (more on that in a minute), or it can be rolled into a Roth IRA, which can grow tax-deferred, with qualified distributions tax free under current tax laws.
With the company stock, if you’ve owned it for a long time inside the plan, there may be an opportunity to utilize the Net Unrealized Appreciation or NUA strategy. We’ve done a ton of NUA distributions for our clients because it allows you to take the Valero stock out of the plan, paying income tax on only a portion of its value, called the cost basis.
NUA only works in specific situations, and sometimes we don’t even know the details until we’re on the conference call with Merrill. But if it’s a potential benefit in your situation, we’ll discuss it thoroughly so that we can provide the instructions once we get the details during the call.
By the way, we’ll also discuss it with your tax advisor, as not all CPAs are familiar with it, at least not until they look up Internal Revenue Code Section 402(e).
For a free analysis of your NUA situation, call us at 866-916-9900, or click the scheduling link at retirefromvalero.info.
There’s a couple of things that happen on the call itself. First, we need to establish everyone’s identity, and the Merrill rep needs your authorization to discuss with and take instructions from us.
Then, we confirm all the current details on the account, including the balances in cash, after-tax, and Valero stock. Then, your Enduring Wealth Advisor provides all the instructions for the desired transfers including account numbers, amounts, and registrations.
After we’re comfortable that Merrill has the information they need to process the distributions according to your wishes, which by-the-way is done on a recorded line, we get a confirmation number.
One last thing happens on the call. You must acknowledge that you, quote, waive the right to a 30-day review, end quote, of the Rollover Notice required by the Internal Revenue Code section 402(f).
Finally, Merrill sends the checks, even those made payable to the IRA custodian, directly to you in about 7 to 10 business days. We’ll give you a FedEx envelope to send them to us for deposits, and within a few days of that we can begin sending money to your bank account if that’s part of the plan.
Obviously, there’s a lot of moving parts, and you only get one chance to get this right, so please reach out to us to discuss your plans for a life after Valero.
This material was created for educational and information purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.
Stock investing involves risk, including possible loss of Principal.
Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.