Are You an Executive? What You Should Know About Navigating Tax Laws and Retirement Planning

Optimizing Your Compensation Package

Your compensation package offers several tax-saving opportunities:

1. Defer Income: Push bonuses into future years when you might be in a lower tax bracket.
2. Time Your Stock Options: Exercise options strategically to manage tax liability.
3. Leverage Restricted Stock Units (RSUs): These can offer tax deferral benefits compared to standard stock compensation.
4. Explore Nonqualified Deferred Compensation Plans: Defer large portions of compensation on a pre-tax basis, but understand the risks and rules.  

The impacts of optimizing your compensation package for maximum returns and tax efficiency can be huge. For example, one of our clients, Bill, has worked as an executive in the pharmaceuticals industry for years. I was thrilled when he shared with us the impact that our financial strategy is having for him:  

“WHZ has guided me in making my employee stock purchase plan and restricted stock units as tax-efficient as possible. I’m continually impressed with the financial acumen at WHZ and how they anticipate issues or opportunities I may not have considered,” Bill said.*

Maximizing Tax-Advantaged Retirement Accounts

Beyond the basic 401(k), consider these options:

• Backdoor Roth IRA: Use this strategy to convert traditional IRA contributions, even with high income.
• Mega Backdoor Roth: If your 401(k) allows after-tax contributions, you could potentially contribute up to $69,000 total in 2024 (plus an additional $7,500 catch-up contribution if you are 50 or older).
• Cash Balance Pension Plan: For those nearing retirement, this allows large tax-deductible contributions.
• Health Savings Account (HSA): A triple-tax-advantaged account that can serve as additional retirement savings. 

Navigating Equity Compensation

Stock-based compensation significantly impacts your taxes and retirement planning:

• Consider an 83(b) election for restricted stock to potentially save on taxes if stock value increases.
• Be aware of alternative minimum tax (AMT) implications for incentive stock options (ISOs).
• Develop a plan to diversify company stock holdings over time to reduce concentration risk.

Managing Tax Bracket Transitions

Be strategic about managing your tax bracket as you approach retirement:

• During peak earning years, focus on tax-deferred savings to lower your current tax bill.
• In early retirement, consider Roth conversions to take advantage of lower tax brackets.
• Time withdrawals from various retirement accounts to smooth out tax liability.

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Charitable Giving Strategies

Philanthropy can be good for both society and your tax bill:

• Donate appreciated stock instead of cash to avoid capital gains taxes.
• Consider donor-advised funds to front-load charitable deductions.
• If over 70½, use qualified charitable distributions (QCDs) from IRAs to satisfy required minimum distributions without increasing taxable income.

Estate Planning Considerations

Align your estate plan with your retirement and tax planning:

• Leverage your lifetime gift tax exemption ($13.61 million for an individual or $27.22 million for couples filing jointly in 2024) to transfer wealth tax-free.
• Consider an irrevocable life insurance trust (ILIT) for estate tax liquidity.
• Explore strategies like grantor retained annuity trusts (GRATs) or intentionally defective grantor trusts (IDGTs) for efficient wealth transfer. 

Charting Your Course: The Bottom Line 

At WHZ, we understand the complex challenges executives face in tax planning and retirement preparation. You need more than just financial advice – you need a partner dedicated to your long-term success. That’s why we’re committed to providing each of our clients with “Absolute Confidence. Unwavering Partnership. For Life.” Contact us at (860) 928-2341 or schedule a complimentary consultation on our website at whzwealth.com to see how we can help you chart a course towards a more prosperous and secure financial future. 

* This statement was provided 2/29/2024 by Bill Eicholzer who is a client. This statement may not be representative of the experience of others and is not a guarantee of future performance or success. For additional reviews, search us wherever local businesses are reviewed. 

Authored by Principal/Managing Partner & Chief Goal Strategist James Zahansky, AWMA®. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. 697 Pomfret Street, Pomfret Center, CT 06259 and 392-A Merrow Road, Tolland, CT 06084, 860.928.2341. http://www.whzwealth.com These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your financial advisor. Weiss, Hale & Zahansky Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice.