How Executives Minimize the Retirement Tax Hit – Plan Ahead

Nikki Kook – Marketing and New Business

Make a plan for your large retirement payouts, such as stock awards and deferred compensation, at least one to two years before leaving.

In addition, take inventory of short-term cash flow needs in retirement, such as health and insurance needs and exercised stock-option taxes. Lastly, always review the company’s policies.

Executives who took advantage of a Nonqualified Deferred Compensation Plan need to decide whether to take this accumulated pay as a lump sum at retirement or take payments starting 5-10 years after retirement (ie: an annuity-like income stream). This election must be made AT LEAST 12 months before the executive’s retirement date.

A tax-friendly option of the lump sum deferred compensation payment is charitable giving. The donor takes an immediate tax deduction on the amount invested in the donor-advised fund, sets up the donor’s charitable giving for the long term, and allows the donor to decide which charities.

Two more characteristics regarding retirement are the retirement date and Social Security. Some executives choose to delay retirement into the next calendar to maximize 401(k) contributions and push stock and Nonqualified Plan assets another year. Furthermore, executives may delay taking Social Security payments until 70 to avoid adding income to the already large stock and deferred compensation payments.

Regardless of the path chosen, please review your company’s policies to remain compliant.

Three main reasons plan sponsors offer Nonqualified Deferred Compensation Plans according to The Wall Street Journal:
1. To allow plan participants to save for retirement in excess of qualified plan limits
2. To help retain key employees
3. To provide a competitive benefits package when recruiting key employees

Contact Executive Benefits Network if you have questions.