Jack is a manager with a local hi-tech company. He changed firms about three years before we began working together. Lynne is a stay-at-home mom who volunteers and teaches yoga part-time. Jack and Lynne want to be able to send their son, Miles, age 10, to college. They also want to be able to help their daughter, Carrie, age 24, who has some special needs, as needed throughout her life. Jack is 60 years old and hopes to retire at age 68 when Miles goes to college.
Jack’s former employer’s retirement plan was 100% invested in his former company’s stock, which was fairly volatile. Jack’s basis in the stock was low compared to the value of the stock. The majority of Jack’s investments were in this former employer’s retirement plan and some smaller IRAs.Jack also had an Employee Stock Purchase Plan and Restricted Stock Awards available to him through his current employer.
We often see clients in situations such as Jack and Lynne’s, and work together to evaluate options such as:
- Reducing the projected overall tax bill throughout life by taking advantage of Net Unrealized Appreciation rules that allow a former employer’s stock to be moved out of the retirement plan
- Installing an annual strategy to diversify the stock
- Creating flexibility to pay for college and help with other financial responsibilities as needed
- Utilizing both the Employee Stock Purchase Plan and Restricted Stock Units while decreasing risk to the family and their portfolio
- Taking advantage of IRA to Roth IRA conversion rules to be able to have tax-free investments in retirement
This case study is hypothetical. It does not reflect a specific client or situation. An individual client’s circumstances and results will vary. This case study is presented only as an example and is not intended as investment advice.