By Matthew Fatz, CFP®
Executive compensation packages often involve an intricate web of stock options, benefit elections, bonuses, and incentives. When you’re making your choices during annual enrollment, it can be difficult to determine how each element fits into your greater financial plan.
Our team can help you make sense of your options and align your choices with your overall goals. However, before you start, you might find it beneficial to review this road map of key decisions.
Optimize Deferred Compensation Elections
Many executive compensation packages include an optional nonqualified deferred compensation (NQDC) plan. If you opt into an NQDC plan, do the following during annual enrollment:
- Set new deferral elections for next year.
- Verify your deferrals are in line with your future cash-flow needs.
- Look closely at the plan’s investment options to align them with your portfolio as a whole.
The IRS subjects NQDC plans to strict timing rules under Section 409A, and deferral elections are almost always irrevocable.
Evaluate Long-Term Incentives and Equity Awards
Executive compensation packages almost always include restricted stock units (RSUs), stock options, and performance shares. Although these incentives generally aren’t directly linked to annual enrollment, this is an ideal time to review them and coordinate with the rest of your financial plan.
These are a few key steps to take:
- Review vesting schedules.
- Review potential tax events.
- If you have incentive stock options (ISOs), review alternative minimum tax (AMT) exposure.
We often help clients coordinate their exercise strategies with their overall cash flow and their plans for charitable giving and portfolio diversification. When you understand the interplay between awards and income and benefits elections, you’ll be better equipped to manage taxes and mitigate risks.
Maximize Employer Benefits and Tax Efficiency
When you’re navigating the many choices involved in executive compensation packages, it’s easy to accidentally overlook benefits that can optimize after-tax wealth accumulation. These are three common benefits that can complement your overall tax strategy:
Health Savings Accounts (HSAs)
HSAs provide a triple tax advantage: contributions lower taxable income, funds in the account grow tax-free, and withdrawals for qualifying medical expenses are also tax-free. Most plans allow you to invest contributions over a certain limit to pay for healthcare costs in retirement.
Flexible Spending Accounts (FSAs)
Contributions to and withdrawals from FSAs are also tax-free. However, unlike HSAs, FSAs are “use it or lose it” accounts that don’t roll over each year.
Supplemental Disability and/or Life Insurance
This coverage can shield your family if you are suddenly unable to work. However, you should carefully review coverage levels. As an executive, your income may exceed standard plan limits.
Integrate Executive Benefits With Estate and Retirement Plans
Open enrollment is a great time to verify your benefit elections are in alignment with other key elements of your broader financial plan:
- Retirement plan contribution strategies
- Estate planning documents
- Charitable giving goals (especially when large equity awards are vesting)
With many of our clients, we perform coordinated reviews of executive compensation packages. If any of your elections are working against your future financial independence or other financial objectives, we can explore solutions to help you get back on track.
Involve Your Advisory Team
Our financial advisors have helped countless clients build executive compensation packages, but we’re just part of the picture. Ideally, you should work with a financial advisor, a tax professional, and your estate planning attorney to accomplish these key objectives:
- Avoiding costly election mistakes
- Coordinating across various plans and accounts
- Taking advantage of available opportunities for tax savings
Executive compensation packages are complex. When building yours, it’s critical to give the process the time, attention, and care it deserves.
Need Help Navigating Executive Compensation Packages?
Thrive Wealth Management, LLC focuses on the financial needs of executives and their families. This annual enrollment, let us guide you through your options for executive compensation packages.
If you have specific questions or just want to learn more, contact us online today. To schedule a meeting, call (215) 376-5530 or email mfatz@thrivewealth.com.
About Matthew
Matthew Fatz, CFP®, is a Financial Planner at Thrive Wealth Management, LLC, a boutique financial planning firm in Blue Bell, Pennsylvania. Matt brings an approachable style to the table and centers every client’s plan around their goals and dreams (not spreadsheets or markets). Clients often come to him asking one question: “Am I going to be okay?” Matt takes pride in answering that clearly, providing calm, objective advice that helps people act with confidence. He follows a consistent process with every client, but his recommendations are always tailored to each person’s unique situation; and he explains complex decisions in plain language so clients can truly understand their options. What he finds most rewarding is helping people overcome the emotions of money and gain the relief of having a clear, confident plan.
Matt began his career in 2008 with Bernstein Wealth Management, working with high-net-worth clients through the Global Financial Crisis. He later supported advisors nationwide at SEI Investments and then worked directly with families at United Capital before joining Thrive. A CERTIFIED FINANCIAL PLANNER® professional, Matt is a graduate of Susquehanna University with a BS in Finance. He lives in Wayne, PA, with his wife, Amy, and their three sons. A big sports family, they love basketball, golf, lacrosse, and the outdoors. Matt also enjoys coaching his boys’ basketball teams and spending time near the water. To learn more about Matt, connect with him on LinkedIn.
Disclosure:
This material is provided for informational and educational purposes only, should not be viewed as an exhaustive discussion of the topics presented, and should not be construed as individualized advice for any reader’s personal circumstances. For guidance on how these matters may impact your financial plan or investment portfolio, please contact your Thrive Wealth Management, LLC representative. While the information presented is believed to be factual and up to date, Thrive Wealth Management, LLC does not guarantee its accuracy and, due to various factors, including but not limited to changing laws and regulations, this information is subject to change. All expressions of opinion reflect the judgment of the authors as of the date of publication.
Please visit https://thrivewealth.com/disclosure for additional information regarding the professional designations and credentials discussed. Professional designations and credentials do not guarantee success or any particular investment or financial outcome.
Past performance does not guarantee future results. All investing comes with risk, including risk of loss.
