Corporate Executive, Dedicated Mom. Roberta is a high-ranking executive at a publicly traded company, but the lure of dedicating more time to her sons is too strong to ignore. Like the excellent planner that she is, she knows it’s never too early to prepare.
She has accumulated a sizable degree of wealth thanks to her 401(k) plan, deferred compensation and company stock, but she wanted to make sure to make the most of it – and that meant addressing all the investment complexities and tax implications that accompanied it.
Upon meeting Roberta and getting to know her and her personal details, we learned that company stock and stock options represented 50% of her overall net worth, which makes her highly vulnerable to the fluctuation in the company stock. Because she can only buy or sell the company stock during certain periods throughout the year, we monitored the stock price because her transaction window approached quickly.
Through the work of a dedicated investment team, our client reduced the amount the company stock represents of her overall net worth in a tax-efficient manner, while protecting her downside risk on the remaining stock that she was not ready to (or able to) sell by hedging her position.
We conducted a detailed analysis of her corporate stock options, restricted stock units (RSUs), company stock holdings, and their potential tax liability. In accordance with Rule 144, we presented a lending program designed to provide liquidity without having to sell her restricted shares, and offered a way for her to receive compensation while complying with her restricted shares’ vesting plan, distribution schedule and income tax responsibility.
We considered tax-efficient strategies for drawing the income she would need to maintain her desired lifestyle and helped determine the appropriate mix of assets to help Roberta achieve her goal for having monthly retirement income to sustain her lifestyle. We also stress-tested her investment portfolio to ascertain the effect certain events could have, which helped her (and us) understand her true tolerance for risk.
To meet Roberta’s wish to someday leave a legacy for her family, we collaborated with her estate attorney to develop a plan, consider strategies to mitigate estate and transfer taxes, and ensure proper titling of her accounts, assets and beneficiary designations.
This hypothetical example is for illustrative purposes and is not representative of any actual experience. Individual results will vary. It is presented only as an example and not intended as investment advice. Asset allocation and diversification do not guarantee a profit nor protect against a loss. There is no assurance that any investment strategy will be successful. Investing involves risk including the possible loss of principal. While interest on municipal bonds is generally exempt from federal income tax, it may be subject to the federal alternative minimum tax, state or local taxes. In addition, certain municipal bonds (such as Build America Bonds) are issued without a federal tax exemption, which subjects the related interest income to federal income tax. Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. Raymond James financial advisors do not render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional.