Transition is Never Easy: What’s Next for Your Financial Health When It’s Time to Retire or Your Executive Role is Changing?

By Courtnay Bazemore

Understanding and Protecting Your Compensation and Benefits

For corporate executives and high net worth individuals, there comes a time when one is faced with either retirement (planned or unplanned) or an unscheduled corporate restructuring. Understanding your compensatory and benefit issues, while being prepared ahead of time, is mission critical to preserving your wealth. In addition, the recent major change to the tax code adds further challenges to tax planning in times of transition.

If you aren’t sure where to begin, you’ll want to consider and address the following decision areas involving timing and tax impact:
 
  1. Deferred Compensation Payments – Deferred compensation, which is made available by many companies to C-level or other high earners, allows employees to set aside part of their annual salary or bonus, to be paid at some point in the future. Money set aside grows tax-deferred, until paid out to the employee. If you’re participating in a deferred compensation plan, there are variable tax implications at play should your position be restructured, or you retire.
  1. Stock Based Compensation – Which can include the following:
    1. Performance Stock Units (PSU) & Restricted Stock Units (RSU) – PSUs and RSUs may be a viable source of retirement income since they are taxed when vested.
    2. Stock Option Exercises – Stock options are classified as either qualified or non-qualified. Qualified stock options may offer special tax benefits to executives, but in limited amounts, and may be subject to minimum tax issues. Non-qualified stock options may be subject to ordinary income and social security taxes when the option is exercised.
  1. Pension Plan Benefit Options – For high-profile executives, many companies offer supplementary plans, generally known as nonqualified deferred compensation (NQDC). NQDC plans allow executives to defer a much larger portion of their compensation, and to defer taxes on the money until the deferral is paid. The new Tax Cuts and Jobs Act modifies the definition of a covered employee at a publicly traded company.
  1. Severance Payments – There’s a lot of fine print when it comes to severance payments. And, the terms of your departure – whether a forced transition or early retirement – will determine the Federal as well as state tax details. Every individual’s circumstances will be different, so it’s important to receive counsel from an experienced tax consultant to formulate the best plan.
  1. Rollover and Distribution Strategies for 401(k) Plans – To rollover or not to rollover, that is the question. While certain types of conversions enable greater tax flexibility, and rollover may improve flexibility with your investments and distribution, a tax specialist will be able to analyze your current financial situation to provide you with the best course of action.
Windham Brannon can assist you with navigating the new rules stemming from the Tax Cuts and Jobs Act of 2017, as well as provide strategy for asset preservation during times of transition. For more information, please contact Courtnay Bazemore at cbazemore@windhambrannon.com. You can also view our informational one-pager here.