Client Profile: Corporate Executive
- Age 59
- Married with 2 adult children, 3 grandchildren
- Annual income: $1,000,000
- Net worth: $7,500,000
- Investable assets: $4,500,000
Situation
The corporate executive works long hours with a demanding travel schedule in exchange for a rich compensation and benefits package. A significant part of his incentive compensation is tied to his company’s stock price in the form of restricted stock and option grants subject to vesting schedules. In addition to stock-based compensation the executive is eligible for the company retirement plans including a 401(k) and deferred compensation plan. He and his wife would like a financial plan to support his family’s lifestyle after he retires in five years, along with guidance around maximizing the overall compensation and benefits package given their personal goals.
Action
- Helped client determine which shares of company stock to sell to reduce company specific risk while planning to mitigate tax costs associated with stock sales.
- Recommended client hold existing stock inside company 401k plan to take advantage of a little-known strategy called Net Unrealized Appreciation (NUA) to receive favorable income tax treatment on 401k withdrawals upon retirement.
- Increased contributions to company deferred compensation plan to reduce current year tax liability.
Result
- Reducing exposure to company stock enabled the client to invest in a diversified portfolio with less risk. The clients were more confident in their ability to afford their current lifestyle in retirement.
- Significantly reduced expected income tax costs over a 20-year period by more effectively utilizing company retirement plans.
- Allowed executive to spend less time managing his personal finances so he could focus on work and spend more time with his family.
