By Mike Gibbons, RICP®
One of the best ways to avoid financial anxiety in retirement is to work with your financial professional to map out various retirement scenarios to see what your savings can handle. Knowledge will empower you, especially in this situation. Taking advantage of the many Abbott Laboratories/AbbVie retirement benefits can help manage your retirement savings and mitigate taxes.
In this guide, we’ll explore the types of benefits offered and how they can be used to save taxes in retirement. For a full in-depth review of each benefit, check out my other articles here.
Abbott Laboratories ESPP
The Abbott Laboratories ESPP is a benefit program that allows you to purchase company stock at a discounted price. Since Abbott runs the program, they make it easy for you by withdrawing the money for the purchase automatically from your paycheck on a regular basis.
During the “offering period,” you accumulate payroll deductions; then during the “purchase period,” those deductions are used to purchase Abbott/AbbVie stock. Then you simply own company stock and can do with it whatever you see fit.
Since the Abbott ESPP is a qualified plan, your payroll deductions are taken on a pre-tax basis and not considered part of your taxable income. As the stock grows, you are benefiting from tax-deferred growth. If you hold the stock for at least one year and sell it at least two years after the offering date, then you can pay lower taxes on any potential gains. (1)
The Abbott ESPP can be a great way to take advantage of the company’s profitable track record, allowing you to share in the success of your company while also saving in taxes.
The Stock Retirement Plan
The Stock Retirement Plan (SRP) is Abbott’s 401(k). Under the SRP, employees who contribute 2% of their gross pay to the 401(k) will receive a 5% company match.
Since the SRP is a 401(k), you are allowed to contribute $20,500 annually in 2022 ($27,000 if over age 50). (2) Contributions are automatically deducted from your paycheck, meaning they won’t show up as part of your annual income. This is a great way to defer taxes until your retirement years when you could potentially be in a lower tax bracket.
Employer and employee contributions cannot exceed a combined amount of $61,000 ($67,500 if over 50). (3) With the generous matching amount offered by Abbott, this means your retirement nest egg could grow substantially over time.
Abbott also offers a program called Freedom 2 Save, which will automatically make employer contributions to your SRP plan up to 5% of your gross salary as long as you contribute at least 2% of your income to student loan repayment.
Abbott/AbbVie Long-Term Care
The Abbott/AbbVie long-term care benefit offers assistance to covered individuals who have an ongoing disability or illness that prevents them from caring for themselves. Under Abbott’s plan, participants are responsible for the full premium payments. This may not seem like much of a benefit, but long-term care premiums are considered medical expenses by the IRS. This means that they are tax-deductible for those who itemize their deductions.
Not to mention, long-term care is a growing necessity for many Americans nearing retirement age. The costs of care are exorbitant, with the national average cost at about $300 per day or about $9,000 per month for a private room in a nursing home! (4)
The Abbott/AbbVie long-term care policy can go a long way in making sure you’re covered both before and after retirement.
Abbott Restricted Stock Units
RSUs are a form of equity compensation that is subject to a vesting schedule. With the Abbott RSU plan, the company promises shares of company stock to employees, which they will earn over time by reaching certain performance milestones or years of service to the company. Once an RSU has become fully vested, it is converted to stock.
The fair market value of the converted shares is considered compensation and will be taxed at your marginal tax rate. Understanding when this will happen is crucial in order to minimize your tax liability. For instance, if you expect a large portion of your RSUs to vest next year, you should try to minimize or defer other income to a different year so you aren’t pushed into the next tax bracket.
It’s also important to think through what you want to do with the stock once it has become available. Selling it within one year of conversion may result in capital gains that will be taxed as ordinary income, whereas holding it for at least a year will allow any gain to be taxed at the preferential, long-term rate. Either way, fully integrating your RSUs into your wealth management plan is a necessary step.
How We Can Help
Navigating your Abbott/AbbVie benefits doesn’t have to be complicated or confusing. At Gibbons Financial Group, we work with many Abbott employees and understand the ins and outs of your benefit structure. If you have questions on how your benefits integrate with your overall financial plan, we would love to hear from you!
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 material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.
Descriptions of plan features and benefits are subject to the plan document, which will govern in case of inconsistencies.
This article is intended to assist in educating you about insurance generally and not to provide personal service. If you need more information or would like personal advice you should consult an insurance professional.
Investing involves risk including loss of principal.
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(1) https://districtcapitalmanagement.com/how-do-employee-stock-purchase-plans-work/
(2) https://www.investopedia.com/retirement/401k-contribution-limits/
(3) https://www.investopedia.com/retirement/401k-contribution-limits/
(4) https://www.genworth.com/aging-and-you/finances/cost-of-care.html