Diversifying Company Stock

James RobinsonApril 2013

A 55-year-old corporate executive with a heavily concentrated equity position of employer stock wished to retire early

Facts & Goals

  • The client is currently in the 35% tax bracket
  • The client held $500,000 worth of company stock with a cost basis of $35,000 in a 401(k) and was reluctant to sell shares for fear of paying large sum in taxes
  • The client had questions about how to exercise existing stock options without triggering an unfavorable tax consequence
  • The client had concerns existing in regard to taking a lump sum or annuitized pension payment
  • The client has interest in supporting his college alma mater

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Analysis & Recommendations

  • We analyzed several strategies to reduce his exposure to his company stock while taking into account the overall tax impact associated with reducing his position.
  • By taking advantage of favorable tax rules that enabled the James to pay the majority of his taxes at a lower long-term capital gains rate, as opposed to a higher ordinary income rate, we assisted James in selling employer stock from his 401(k) plan.
  • Our recommendation saved James more than $100,000 in taxes, relative to his alternative strategy which was to roll the company stock into an IRA and then sell out of the shares.
  • We were able to exercise James' existing stock options in a way that minimized exposure to the Alternative Minimum Tax.
  • We established a charitable gifting strategy designed to support his alma mater and provide a charitable deduction to offset income generated from the sale of stock.
  • James had a pension but was unsure as whether or not to take a lump sum or annuitized payment over the course of his retirement. Our analysis suggested that a lump sum payment would allow the client to have the assets managed professionally and generate a greater rate of return than the annuitized pension option.
  • James was able to retire sooner than he had anticipated, and we were able to design a comprehensive portfolio strategy that coordinated the entirety of his investment holdings. The portfolio is monitored on an ongoing basis to ensure it is meeting his needs and objectives in retirement.
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The scenarios presented here are for informational purposes only and do not represent the experience of actual clients. Individual results will vary and the outcomes described are not indicative of future performance or success.

While all client situations are unique, these case studies are intended to provide examples of how FirstPoint Financial advisors work with clients to find creative and effective solutions to each clients’ unique financial planning situations.

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