By Mike Gibbons, RICP®
As financial advisors, we often encounter scenarios where professionals in the BioPharma industry may need to cash out all or part of an investment. If your Abbott/AbbVie retirement plan includes restricted stock units (RSUs), there are a few things you should be aware of before deciding when and how to cash out.
Tax Consequences: Pros And Cons Of Selling Early
Two tax structures come into play with RSUs; you are taxed on the shares when you receive them, then taxed on any gains that occur after the shares are issued. Since RSUs are shares granted to an employee as a form of compensation, the shares are taxed at the time of vesting, with the then-current market price of the shares taxed as ordinary income. In terms of capital gains tax, the equation is simple. If you hold your RSUs for more than a year after they vest, your gains on the stock will be taxed as long-term capital gains instead of short-term capital gains, which are taxed at the same rate as ordinary income.
Taxes are one factor to consider when timing the sale of any asset, but not the only factor. Don’t forget about 83(b) election which may benefit you from a reported income standpoint. Sometimes, especially if a stock is trading at an all-time high, the risk of waiting a year outweighs the additional tax liability. You also have to factor in other assets in your portfolio, as well as the potential that the long-term capital gains tax rate could increase in the future. The best thing you can do is work with an advisor to determine the price at which you will sell.
Titling
Proper titling prevents the possibility of the courts deciding what happens with your RSUs when you pass away. By default, all RSUs (and any other company stock awards) are issued to one individual employee. This can create a problem if you die intestate (without a will) or if your will is contested. The titling of the shares should be set up as a joint tenancy with right of survivorship (JTWROS). This layer of legal protection is stronger than listing an heir on your will as it causes ownership to pass automatically to the joint tenant upon your death. It is the responsibility of the employee to enlist proper titles of stock awards.
How We Can Help
We specialize in serving the pharmaceutical, biotechnical, and healthcare industries and enjoy helping employees create strategies to retire early. RSUs and stock awards can play an important role in your retirement picture as the company grows. If you would like to evaluate your retirement plan, call 224-419-5550 or email me at Mike@gibbonsfinancialgroup.com to schedule a complimentary consultation. And be sure to join our free webinar, Retiring Early From Pharma.
About Mike
Michael J. Gibbons is founder and president of Gibbons Financial Group, an independent advisory firm providing custom-tailored financial planning and investment management services to pharmaceutical and healthcare professionals and their families. Mike has over 25 years of experience and spends a significant portion of his day working with pre-retirees and retirees, focusing on asset management, Social Security and pension planning, as well as retirement income preparation.
Mike has degrees in both business and psychology from Lake Forest College and currently holds his Retirement Income Certified Professional (RICP®) designation from the American College. Mike was named a Five Star Wealth Manager for 2016 and 2018* Mike is heavily involved in his community, having served on the Village of Gurnee Police Pension Board as a Community Volunteer and the St. Patrick’s Parish Financial Board. When he’s not working or volunteering, Mike loves playing golf and spending his time with his wife and children. To learn more about Mike and how he can help you, connect with him on LinkedIn, visit his website, and register for his free webinar, Retiring Early From Pharma, created specifically for professionals retiring from the pharmaceutical, biotechnology, and healthcare industries.
*Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2016/2018 Five Star Wealth Managers.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for individualized tax advice. We suggest that you discuss your specific tax situation with a qualified tax advisor.