If you’ve ever watched a team rowing event, you’ve probably admired the precision and unity of the rowers as they power the vessel along the water. But have you ever thought about how they stay on course? After all, the people providing the drive for the boat are all facing backward, able to see only where they’ve been. Actually, the most important single person on the team is probably the coxswain: the person sitting at the back of the racing shell who faces forward and gives the voice commands that not only keep the team rowing in unison, but also ensure they’re going in the right direction. By subtle use of a rudder, commands, and “pressure” adjustments transmitted vocally to the rowers, the coxswain provides the course corrections required to help the team reach the finish line as swiftly as possible.
As we’ve mentioned previously concerning restricted stock units (RSUs) and other executive compensation, mid-year planning and, if needed, course corrections can be vital for keeping your wealth-building efforts headed in the right direction. In this article, I’ll pose three important questions you can ask yourself as we approach the year’s midpoint that can help you make sure you’re “rowing toward the finish line” by the most efficient course.
1. Have your goals changed?
It shouldn’t come as a surprise that throughout the course of even the most successful careers, the goal line can (and often should) move, from time to time. Maybe an IPO has created a sudden influx of value in the form of equity that necessitates some re-thinking of tax strategy or estate planning. Maybe an early retirement has become a more realistic possibility or even a necessity. On the other hand, maybe your plans have shifted to a longer time before retirement in order to accommodate a lifestyle change. Whatever the reason, when a major life or career event happens, it can necessitate a shift in your goals, which in turn usually necessitates a shift in your financial plan. You may need to begin allocating more to a tax-advantaged employer plan; you may need to start planning for how required minimum distributions (RMDs) will affect your retirement cash flow and tax bracket; you may need to create additional liquidity from existing assets to take advantage of a major business opportunity. All of these changes can exert effects on your tax situation for the year, so now, while you’ve got several months to do so, may be the time to implement compensating strategies.
2. What’s your year-end tax forecast?
And speaking of taxes, this is probably the best time to take a look ahead, anticipating what your tax liabilities might be by the end of the year. Especially for those who may be receiving vested stock units, stock compensation or options, bonuses, or other forms of executive compensation, it may be advisable to estimate the tax liability involved and begin making plans for reducing or otherwise handling the payment coming due to the US Treasury. Some may even wish to consider charitable gifting or other means of trimming taxable income to offset potential tax liability. But however you decide to handle it, it’s better to start getting some clarity around your tax situation now, while you’ve got time to prepare.
3. What are your liquidity needs?
Related to the taxation of executive compensation, this is also a good time to estimate any extraordinary or non-recurring liquidity needs for the year. Do you need to free up cash to pay the taxes on vested stock units? Have you developed a concentrated position that you need to start unwinding (and recognizing some of the capital gains implications)? Or, on a slightly different tack, does an impending retirement create the need for repositioning assets to generate current income (a process that can also come with a capital gains price tag)? These and other situations can cause a need to access cash that is presently in the form of other asset types; a little advance planning now can lead to fewer tax headaches during the next filing season.
At Optima Asset Management, we work with successful executives, CEOs, and others who are creating significant wealth to help them keep more of what they earn. If you have questions about executive compensation, tax-efficient investing, or other important financial topics, we are here to help.
