Dear Dr. Don,

I just read the Q&A titled Risk of rolling over 401(k) with company stock, and part of it confused me. I am 25 years old. My company matches my 401(k) contributions with company isstock. Are there large fees and tax issues with converting my company stock to other higher rk stocks? It isn't a huge problem for me at the moment as my company stock consistently makes 8 percent to 9 percent, but this may not be the case for everyone. Please help!

- Brian Bundle

Dear Brian,

You're in a different place than the reader who was looking to move the account at retirement. She's at the end game of the accumulation period, having already built wealth to meet her retirement goals, while you're at the beginning of your career. Net unrealized appreciation (NUA) is a critical aspect of her deciding what to do with the company stock held in her retirement account, but you've got some flexibility.

There's always an element of additional risk when you put your investment capital to work in the same company you put your human capital (labor) to work. You're doubling the risk that you will pay if the company has a financial setback. It's a good idea to limit your investment in your company stock to no more than 10 percent of your investment portfolio. When you do the calculation, make sure to include both taxable and tax advantaged investments, so it's not just 10 percent of your 401(k) account.

If you're over 10 percent, lighten up on the company holdings by selling shares, as permitted by the plan, and invest your contributions in other investment options. For every success story where the employee has been well served by concentrating his investments in the company's stock there are dozens of stories where that strategy led to a less secure retirement.

Selling shares and reinvesting within the 401(k) plan doesn't have an immediate impact on your taxes. The long-term tax impact is to have sold shares that could have qualified for NUA and capital gains rates and substitute them with investments that will be taxed as ordinary income when distributed out of the account. Fees and expenses depend on the plan provisions and investment offerings, but are unlikely to be so high as to make diversification financially impractical. Talk to your plan provider about these expenses.