Shareholders should make the most of their votes

Personal Finance editor HELEN HUNTLEY E-mail: Click here Archive

By HELEN HUNTLEY

© St. Petersburg Times, published May 14, 2000

Q. Every year about this time I get annual reports and proxy statements from companies in which I own shares. For the past 40 years I have been voting my shares by proxy. The board always recommends you vote the way they want you to. I have always voted against their wishes. I think they are the only ones who gain and the stockholders lose. Am I right?

A. Assuming the worst is an awfully pessimistic point of view!

Voting against nominees for the board of directors is a way to register a protest vote if you are unhappy with the way a company is being run or if you have a problem with one or more of the nominees. Some shareholders vote no when the nominees presented are all white men.

If you are voting on a shareholder resolution opposed by management, read the information in the proxy statement and try to make an informed decision. If you are interested in learning more, you might contact the shareholder submitting the resolution. The company's investor relations department should be able to tell you how to get in touch with the shareholder.

"Part of the value of a share is the opportunity to vote," said Diane Bratcher, spokeswoman for the Interfaith Center on Corporate Responsibility in New York. The center's members often sponsor shareholder resolutions on social and environmental issues. She says they consider these issues important to a company's financial health and viability.

"Corporations really aren't democracies like we've been taught to think of them," she said. "But the leadership of corporations listen to significant dissent."

Q. The dividend reinvestment option on company stock held in our employer-sponsored 401(k) is being eliminated. I am considering having this company stock rolled over into my Roth IRA brokerage account to maintain the dividend reinvestment feature. Is this my best option? What are the immediate tax consequences of this action? Can I take advantage of the stock's net unrealized appreciation? Finally, what effect, if any, will being within a Roth IRA have on the stock's assumed long-term appreciated market value? I am over 60 but do not plan to retire for two or three years.

A. You cannot do what you have in mind. Unless you are claiming some kind of hardship, it is unlikely that your employer would permit you to take your stock out of the 401(k) before you leave the company.

I want to clear up a few of the points you have raised, with some assistance from IRA expert Ed Slott, a CPA in Rockville Centre, N.Y.

"You cannot roll stock or any other assets from your 401(k) directly to a Roth IRA," he said. "The funds must first go to a regular IRA and then be converted to the Roth. Full tax will be due when the money, now in the regular IRA, is converted to the Roth. You cannot skip the tax on the way to the Roth. The only money that can ever be contributed to a Roth IRA is money that has already been taxed."

The special tax break you refer to for company stock allows you to take stock out of a plan and pay tax only on the value of the shares at the time they were acquired by the plan. The tax on the appreciation is delayed until the shares are sold. But to get the break, you have to carefully follow the rules.

"If he wanted to take advantage of the net unrealized appreciation tax break, he must withdraw the entire amount of his plan balance in a lump-sum distribution, and that can never be rolled into a regular IRA," Slott said. "Since it cannot be rolled into an IRA, then it can never end up in a Roth IRA."

Assuming that your company stock involves a significant investment, I recommend getting professional advice when the time comes to decide whether to roll over your money or take the distribution.

Online money map

Questions about 401(k) retirement savings plans are so popular that the 401kafe (http://www.401kafe.com) fills an important niche. There are a lot of good tips and a column with detailed answers to specific questions.

-- Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731, or to huntley@sptimes.com by e-mail.

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