By: Kristen Perez, CFP®


How do you go about making an important decision?  What techniques do you use?  What factors do you consider

Last year we helped a client analyze his pension and 401(k) options when he was getting ready to retire from one of the South Bay’s aerospace companies

In our last post, we saw how deciding between the various monthly annuity options and a lump sum option for a pension distribution option depends very much on the particular retiree’s circumstances.

Now, we’ll look at what matters when deciding whether to use an NUA strategy for the company stock in a company retirement plan.

Whether or not to use an NUA, or Net Unrealized Appreciation, strategy is just as dependent on the particular circumstances of the individual

What is the current marginal tax bracket of the retiree?  This is the rate paid on the next dollar of income.  In what brackets will the retiree be in the future, including the next few years and through retirement?

What is the cost basis of the company stock shares, or what was originally paid for them, whether by your own contributions to the plan or by your employer’s?  How much are the shares worth now?

Do you have strong feelings about holding onto the shares or selling them?  What portion of your retirement capital do the company shares constitute?

With an NUA strategy, numbers aren’t everything.  What are your feelings about getting the “optimum” result vs. keeping things simple?  How good are you at keeping accurate financial and tax records?

We showed our client that the particulars in his case would not make a big impact on his choice, and he could choose the option that felt best to him.

NUA is far from one-size-fits-all.  For some, there’s a clear indicator to go one way or another, and the decision makes a big impact on the finances.  Even though our analysis was a bit anti-climactic for our client since there was no slam-dunk answer, it gave him a lot of comfort to know that he could do what he wanted without over-worrying about the downstream effect.

I hope that we have shown you how a strong financial advisor can help sort through the complex factors that influence these important retirement decisions.