Wealth Accumulation and Employee Stock Purchase Plans

Angela was hired into the training program with her employer, a pharmaceutical company right after graduation and has worked her way up to a corporate position over 20 years.  She’s driven to succeed professionally in order to provide for her disabled daughter, Sophie, and build wealth.  Angela wants Sophie to have the funds to support herself, especially after Angela is gone.

Angela's company Employee Stock Purchase Plan (ESPP) is a broad-based Section 423 plan, which means it is designed as a payroll deduction plan. While her other current forms of executive stock-based compensation are significant, Angela's ESPP is no less meaningful.  The plan allows a broad base of employees to acquire company shares at a discount that is effectively a partial match in shares. Angela has made disciplined systematic salary deferrals each month for 20 years – in dollar amounts she increases annually as her compensation increases. The company's shareholders have been well rewarded. Over Angela’s tenure, she has accumulated more than $600,000 in ESPP shares alone.

When she is ready to sell the shares, Angela, despite incurring ordinary income taxes along the way on the company's discounted purchases of her holdings, may be at additional risk of paying at the top ordinary income tax rate and may be subject to additional taxes resulting from the Affordable Care Act. Angela is striving for the most favorable capital gains tax on the rest. However, she has not tracked the share history of what has already been taxed. Angela has tagged her ESPP for Sophie’s long-term living expenses, supplementing other income sources.

Will Sophie have sufficient income from a variety of sources? What will the tax implications be? Should Angela keep the stock in place or diversify? There are many financial planning implications for Angela and Sophie, now and into the future. Angela has decided to sit down with an SFG Financial Advisor to map out a game plan and scope out the details for Sophie’s financial future.

*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, Special Needs Planning

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