Financial + Retirement Planning For Professionals


You’ve worked your way up the ladder rung by rung, you are successful, you have or are acquiring wealth, and you want to grow it safely and preserve what is already on the table. You wish to de-risk that which has grown. You want to lessen your tax burden…

Executives have more complex issues than the typical individual; the growth and safety of your net worth may be intertwined with your employer’s success, and you may have some complicated decisions to make surrounding your different forms of compensation, including non-qualified stock options, restricted stock units, etc.

We have years of experience helping executives plan for the future, preserve their wealth, and minimize taxes. We are experts in assisting executives with their multiple forms of compensation.

Stock Options

There are two types of stock options: non-qualified (NSOs) and incentive stock options (ISO). Many executives face an important decision: if the options are in the money, when should I exercise them and how? You may have some of the following questions related to them:

  • How are they taxed once exercised?
  • What things should I consider in deciding when to exercise?
  • How should I consider in relation to the rest of my assets?
  • Should I use a cashless exercise or exercise and retain the stock?
  • How does leverage help me with NSOs?

Here are some key metrics we use to help structure a plan to maximize the value of your options:

  • In the money value vs. remaining time value
  • Level of diversification for your invested assets
  • Tax consequence of exercise
  • In the money option values and your retirement funding goal

Restricted Stock Units (RSU)

RSUs are a significant benefit provided to you; in effect, you have stock that matures and loses its restriction, allowing you to own and sell the shares if you choose. It may seem as if RSUs cost nothing, but they impact the amount of income tax withheld from your salary since the expiration of the restriction on the stock is taxed as ordinary income. You may have substantial investments in RSUs that have matured without realizing it. There are significant issues surrounding the decision to hold or sell the shares. For example, as mentioned above regarding NSOs and ISO’s, this decision hinges on several factors. Here at Atlas, we have a systematic approach to assisting you in making the decision. It is essential to consider the following about RSU’s:

  • RSU’s do not provide the leverage NSOs provide
  • You ARE investing in them if you let them mature and do not sell them.
  • You need to consider how much of your net worth you want to be tied to the same source of risk that your salary is linked to.
  • Retaining NSOs is preferable to RSUs if you believe in your firm and want to take advantage of its success due to the leverage.

Non-Qualified Deferred compensation (NQDC)

NQDC can be helpful to reduce your tax burden in years in which you are in the highest tax bracket (37% right now, (rising to 39.6% in 2026). Transferring some salary income from high tax years to years after you retire, where you may be in a lower tax bracket combined with the funds growing without tax within the plan, is valuable. It would be best if you considered the following caveats:

  • You are putting the assets at risk to the firm’s creditors.
  • If you will not be in a lower tax bracket when you retire, then a significant part of the benefit is non-existent.
  • Accumulating too much in an NQDC plan combined with your NSOs and RSUs makes you too dependent on the firm’s success.

Excess 401K Contributions and the Back Door Roth

Some employer 401K plans allow you to contribute post-tax dollars up to the IRS contribution limit of $66,000 (2023 limit including pretax of $22,500, 29,500, and 73,500, respectively, with the catch-up for those over 50). If your plan allows in-service withdrawals, you can withdraw the after-tax payment and contribute it to a Roth IRA outside your employer. This can significantly benefit you, allowing you to increase your assets targeted for retirement and, in part, turn a considerable amount of them into tax-free assets. A thorough review of your plan’s Summary Plan Description lets us determine if you can do this.

HSA

An HSA is another way to save pretax; right now, the amount you can save exceeds $7,000 per year if your entire family is covered under your employer’s health insurance plan. Your employer must have a high deductible plan that qualifies under specific IRS rules. An HSA allows you to grow the money tax-free and withdraw funds for qualified medical expenses without tax. Some strategies around HSAs enable you to take advantage of tax arbitrage. We help you evaluate those strategies.

Case Study:

An Executive Comes to Atlas to assist with Her circumstance:

She is a high-level executive with a growing firm in the technology industry. She mainly had NSOs in the money she never exercised since she needed to understand them thoroughly and was unsure of the tax consequences. She also needed to realize how high a percentage of her net worth they were and that not capturing their in-the-money value represented a substantial risk.

Though the NSOs had a significant amount of time yet to expire, the leverage she had on them had declined, and the remaining time value was small compared to in the money value. We prepared a detailed analysis for her to show the advantages of exercising the options and improving the diversification of her portfolio and her situation, significantly de-risking it. We also showed her the leverage on the options instead of the RSUs (which she already held), as shown in the table below.

Potential Stock Price Increment Change Option Value $ Option Value Change RSA/U & Owned Shares $ RSA/U & Owned Change Option, RSA/U & Owned $ Option, RSA/U & Owned
$149.09 -20.00% 203,447 -51.58% 528,375 -20.00% 731,822 -32.28%
$186.37 -20.00% 420,164 -42.17% 660,495 -20.00% 1,080,659 -30.37%
$232.96 -20.00% 726,493 -34.52% 825,610 -20.00% 1,552,103 -27.52%
$291.20 -20.00% 1,109,421 -30.34% 1,032,013 -20.00% 2,141,434 -25.71%
$364.00 0.00% 1,592,683 0.00% 1,290,016 0.00% 2,882,699 0.00%
$436.80 20.00% 2,084,229 30.86% 1,548,019 20.00% 3,632,248 26.00%
$524.16 20.00% 2,674,083 28.30% 1,857,623 20.00% 4,531,706 24.76%
$628.99 20.00% 3,381,896 26.47% 2,229,141 20.00% 5,611,036 23.82%
$754.79 20.00% 4,231,297 25.12% 2,674,976 20.00% 6,906,273 23.08%
$905.75 20.00% 5,250,579 24.09% 3,209,978 20.00% 8,460,557 22.51%

She followed our advice: liquidating the NSOs with less leverage and the remaining potential gain in the money. She executed a cashless exercise, and soon after that, the company stock was cut in half in a declining stock market. Exercising the options enabled her to preserve several hundreds of thousands in wealth net of tax and helped her diversify her holdings away from her employer’s stock.

Note that the leverage on the NSO’s 20% stock price increase leads to a 30% increase in the value of the NSO. There is no leverage on the RSU, so a 20% increase in the price leads to a 20% increase in the potential value of the RSUs. In many cases, the leverage on the NSOs is much higher if the stock price is close to the exercise price and just beginning to rise above it.




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Laura Mattia and Stephen Craffen, partners at Atlas Fiduciary Financial cover topics related to financial planning, investing and what to look for when you hire an advisor.

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