Dividend Equivalent Income Could Make a Dream Come True

Nick is craving an ocean adventure that’s bound to give him a sense of freedom and accomplishment. As Executive Director for a commercial airline, he wants to strategically use the income from Performance Stock Units to finance what will be an unforgettable trip.

Tackling the Newport Bermuda race, a 635-mile race from Newport, Rhode Island to Bermuda, has been at the top of his bucket list for a long time. With his three children grown, he’s finally in a place personally and financially where he can make his dream happen.
Nick plans to take a month off work in 2016 to prepare for the race, sail to Bermuda and then sail back to Newport. He has 10,000 Performance Stock Units (PSUs). The company’s fiscal year ends on Sept. 30, 2015, and his PSUs are expected to vest on Oct. 30, 2015, as long as all the performance requirements are satisfied, which means the company’s efficiency metrics must be good.

Nick will receive Dividend Equivalents, which are payments of cash or additional company stock he will receive after the units vest. Dividend Equivalents may be deferred for up to two and a half months, subject to company policy.

Nick plans to defer his Dividend Equivalent income until January 2016, so they will be taxed in that year, when his overall tax rate will be much lower. This plan will ensure that the extra income flows in shortly before his extended leave. The 55-year-old executive wants to make sure his trip doesn’t cause cash flow problems for his family or drain his retirement savings. He expects to retire when he turns 60.

As specialists in executive compensation, tax and financial planning, SFG Wealth Planning Services, Inc. can assist you in optimizing your personal financial planning around the timing of these awards as well as your overall personal financial situation.

*The name, likeness and circumstances in this example are a fictional composite of facts from executives similar to actual SFG Clients.

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Executive Compensation, Non-Qualified Deferred Compensation, Performance Stock Units, Restricted Stock Units, Retirement Planning

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