Have a Concentrated Stock Position to Unwind? Here's an Approach to Consider.
Workers who climb the ranks within a company for senior- or executive-level positions likely have accumulated a meaningful amount of that company’s stock along the way. With this, deciding whether or not to sell company stock upon retirement can put you at an emotional and financial crossroads.
It is a decision that requires separating professional identity from financial reality—a challenge that can be surprisingly complex. After years of aligning personal successes with the company’s growth, stepping away can feel like losing a part of yourself. Add to that the difficulty of accepting that the "someday" you have envisioned for decades has finally arrived, it's easy to see why many soon-to-be retirees find themselves hesitating when it’s time to turn those paper gains into actual dollars.
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This reluctance isn’t just emotional; there are also real financial stakes. Concentrated stock positions, common among long-tenured executives, expose investors to significant risk. A company's fortunes, no matter how promising, are inherently tied to market forces and company-specific variables.
For instance, if you've amassed a substantial position in a high-growth stock like Apple (AAPL) during your tenure, you likely have seen tremendous returns over the past few years. However, the same volatility that has driven the stock to record highs could also work against you in the future. Deciding when and how to divest those shares without falling prey to emotional or market-driven overreactions is the key to protecting your nest egg.
The main challenge is deciding whether to sell shares now or wait for a potentially better price later on. This internal debate of "hold vs. sell" can lead to analysis paralysis, with the fear of seller’s remorse looming large. While it is natural to want to capture the highest possible return on your stock, especially when so much of your net worth is tied up to it, waiting indefinitely for the "perfect" moment can leave you exposed to unnecessary risk.
A practical solution to this dilemma is to implement a phased selling plan. Similar to a 10b5-1 plan—a strategy often used by officers and executives of public corporations to avoid accusations of insider trading—this approach involves pre-scheduling periodic sales of company stock over several years and designating an agent to execute sell orders on your behalf.
Deciding to sell an equal number of your shares on a quarterly basis over the next three or four years will help remove emotion from the equation, ensuring that you stick to a plan regardless of market sentiment or short-term price fluctuations. It also gives you 12 to 16 pre-planned exit points, which can help reduce potential regret over a single ill-timed sale.
Not only does a phased plan help simplify decision making, it also offers a tax advantage. Following large capital gains, spreading those sales over multiple tax years can prevent you from abruptly crossing into a higher tax bracket, especially for high earners who are already in the highest marginal tax bracket.
When considering whether to sell company stock, you must also take into account if those shares are owned within a 401(k) plan. If that is the case, and before rolling over your 401(k) into an IRA or liquidating the account, it is critical to evaluate whether any of those shares are eligible for the Net Unrealized Appreciation (NUA) treatment, as the opportunity to use NUA is lost once the rollover is complete.
NUA is a strategy that allows you to take a lump-sum distribution of company stock from your 401(k) and pay ordinary income tax on the cost basis—the price you originally paid for the shares—rather than on the current market value. The appreciation in value is then taxed at the more favorable long-term capital gains rate when the shares are eventually sold.
Ultimately, the decision to sell company stock is about balancing emotional ties with practical financial strategy. A phased selling plan can help you move forward with confidence, taking the guesswork out of timing while still preserving the opportunity to benefit from future stock price increases. And by addressing both the emotional and financial aspects of selling company stock at once, you are better equipped to transition into retirement with greater peace of mind.
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Malcolm Ethridge, CFP® is the Managing Partner at Capital Area Planning Group, based in Washington, D.C. He is also the Managing Partner of Capital Area Tax Consultants.
Malcolm’s areas of expertise include retirement planning, investment portfolio development, tax planning, insurance, equity compensation and other executive benefits.
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Disclosures:
The information provided is for educational and informational purposes only, does not constitute investment advice, and should not be relied upon as such. Be sure to consult with your legal advisors before taking any action that could have tax and legal consequences.
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