Are you a participant in an Employee Stock Ownership Plan (ESOP) or do you have company stock in your 401k? Before you retire, find out the answers to the 4 important questions below. Call or message us today for a free consultation and learn how we can help you.

When will you retire?

Not only does this determine how long your savings needs to last, but also when you can withdraw penalty-free from your retirement accounts. The two key ages here are 59 ½ and 55. Most people are aware that beginning at age 59 ½, you can withdraw from all retirement accounts without penalty. Many people are not aware of the “Rule of 55,” which allows for penalty-free withdrawals from employer plans beginning at age 55. The key is that the separation from service (when you leave your job) must occur in the year you reach age 55 or later. If you leave the employer before this time or roll the assets to an IRA, the required age goes back to 59 ½.

Where will you get your income?

The Declaration of Independence stated all men are created equal. The tax rules for retirement distributions are not. While much of retirement planning often focuses on asset allocation and investments (which are still important), how you generate income can also have a big impact on your annual tax bill. Proper tax planning may help you save a significant amount of money on taxes over the course of retirement.

It is also critical to know how much you need to spend to live the life you want. If you are unsure of this, one starting point is to look at what you spend now and add additional expenses (like travel and hobbies) while removing any expenses that will be eliminated during retirement (like paying off a mortgage, contributing to a 401(k), or no longer having child-related expenses).

How much should you keep in company stock?

Unique rules and planning opportunities apply to company stock inside of a 401(k) or ESOP. One such rule is known as Net Unrealized Appreciation (NUA) and while it can be a complicated topic, it should not be avoided. NUA could allow you to pay less in taxes and anyone with company stock in their retirement plan should evaluate this before making any decisions. Click here to learn more about NUA.

Anyone holding a significant portion of their retirement savings in a single stock should be sure to understand the risks and benefits of doing so. Diversifying all of the stock at one time could lead to missed opportunities while holding too much could lead to increased risk through a lack of diversification. Knowing your comfort level can help you create a plan to produce income and diversify the concentrated position.

Why are you retiring?

While “Because I don’t want to work anymore!” seems like the best answer, it often isn’t that easy. Many retirees struggle with transitioning to retirement, particularly if they have worked at the same job for many years. Having something to retire to or knowing how you want to spend your time can be critical to happiness in retirement.

You may not have the answers to all these questions right away, and that’s okay. We have helped many people just like you find the answers and create a personalized plan that is tailored to what they want in life. Call or message us today for a free consultation.

FAQ

What do I need to bring for a first meeting?

Nothing. Our first meeting is an opportunity get to know each other and outline steps for future planning. If you would like to get a head start before we meet, you can begin to estimate your monthly expenses and find out your cost basis for your company stock. The cost basis of your stock can be obtained from your company’s retirement department. If you do not have company stock in your retirement plan, you will not have a cost basis and can ignore this step.

How do you charge for your services?

Our clients pay a fee based on the amount of assets under management. There is no hourly or annual retainer charges for our meetings. We value relationships where we listen to your needs and share our expertise to help you plan what is right for you.

Can’t I just withdraw from my retirement account as I need it?

It depends. Some employers allow you to keep your assets in their retirement plan indefinitely while others require you to move it by a certain age such as 62 or 65. Additionally, some employers have an “all or none” requirement for withdrawals which essentially means that you must withdraw the entire balance (or roll to an IRA). We can help you understand the rules of your individual plan to make an educated decision.

Do I really need an advisor for all of this?

NUA and company stock bring both unique challenges and opportunities to a retirement plan. Unfortunately, there are no do-overs when it comes to starting your retirement the right way, and mistakes can be costly. We have guided many people through the retirement process and would love to help you as well.

Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.