What corporate executives need to know about wealth planning
Careful planning can help executives diversify their assets and plan for retirement while achieving their estate and charitable goals.
Executive compensation and benefits can be complex, and as you progress through your career, you may face a shiﬅing landscape of benefit choices and have less time to weigh the right options for you. You may also find a growing portion of your compensation tied to your company’s long-term results, with more and more of your net worth concentrated in company stock, stock options or restricted stock. It can be difficult to stay on top of these variables and to make decisions that optimize your benefits, compensation and investments to meet current and future needs.
Yet with thoughtful wealth planning, out of this complexity can come a lasting legacy. Amy Permenter, Head of Executive Wealth Strategy, Planning Center of Excellence, Bank of America Private Bank, has spent more than two decades working with executives throughout their career journeys—helping them manage compensation and benefits, build wealth for retirement, and plan their estates. Here she discusses some key strategies to consider.
How can executives optimize their compensation and benefit plans?
Your wide slate of employee benefits, from health and life insurance to retirement plans, can help build a powerful financial foundation. In making the best use of those benefits, there’s no one-size-fits-all solution. But many executives may find themselves in a position to consider forgoing some short-term benefits in favor of longer-term opportunities.
For example, you might choose a health savings account (HSA) coupled with a high-deductible health plan. Many who use HSAs focus on the immediate availability of pre-tax funds in the account to provide reimbursement for out-of-pocket medical expenses. But if you can afford to pay those current costs without tapping the HSA, you can preserve the account to serve as a tax-advantaged long-term savings vehicle. Distributions aﬅer age 65 can be used for any purpose without penalty, and if the money is used to pay for qualified medical expenses, no tax is due.
Similar considerations could guide your choice of life insurance, whether obtained through your company or purchased on your own. And what makes sense early in your career may be less desirable when you’re older.
What retirement savings opportunities should executives consider?
Preparing for retirement is another priority for executives as they consider their short- and long-term goals, including the state where they choose to retire. As a first step, we recommend maximizing your contribution to your company’s 401(k) or other retirement plan. You may have the option of contributing to a Roth 401(k) as well as a traditional 401(k), funding them with a combination of aﬅer-tax and pre-tax dollars throughout your career. Like an HSA, by funding a Roth you would forgo a current benefit—the income tax deduction you’d get with a traditional 401(k)—in favor of future tax-free growth.
Your company might also offer a nonqualified deferred compensation plan, which lets you defer part of your salary until retirement (or another predetermined future date), thus postponing tax liability. This helps to create a disciplined savings program and can provide a lump sum or a series of payments to provide cash flow in future years. During the distribution period, those funds could allow other retirement investments to grow and help you delay withdrawals, providing more opportunities for compounding growth.
But deferred compensation plans have their own risks, and if much of your wealth comes from long-term equity awards, your participation may escalate your exposure to the company. Those considerations, and others, mean this shouldn’t be a “set it and forget it” strategy, but rather something to reconsider at each enrollment opportunity. Indeed, all aspects of your retirement planning and your participation in other company benefit plans should be revisited periodically throughout your career journey.
How can executives address the risks of concentrated portfolios?
It’s important to start early. As you progress through your career, you’re likely to find a considerable portion of your income tied to company performance through equity awards grants, including restricted stock or stock options. This can lead to stock concentration and potentially excessive exposure to your company, and if you achieve insider status, you’ll be subject to trading restrictions and minimum holding requirements.
To minimize some of those issues, we encourage executives to begin a diversification strategy before portfolios have significant concentration and trading becomes too restrictive. Selling stock and using the proceeds to diversify may be the simplest solution, but when that’s not an option, you might consider giﬅing stock rather than cash to family members or charity, using stock as collateral or participating in hedging strategies. A 10b5-1 trading plan that lets you sell shares according to a predetermined written plan could help minimize reputational risk and accusations of insider trading.
Creating a plan to mitigate the risks of portfolio concentration and build diversification in your portfolio can enable you to go on offense in your planning, turning your attention to the power of your wealth and the legacy you can achieve.
What other factors should executives consider in their wealth planning?
Beyond focusing on savings, investment and diversification, it’s important to take deliberate steps to protect and preserve your wealth. This could mean shielding assets from creditors and from erosion by estate taxes. Various kinds of insurance—life insurance, long-term-care insurance and excess liability coverage—can all play a role in helping to protect assets and provide liquidity. We also advise clients to make sure their assets and insurance are owned in structures that balance accessibility and protection from creditors and taxes. And more complex planning strategies may involve placing assets in certain types of trusts.
How can Bank of America help executives achieve their wealth planning goals and create a legacy?
We partner with our clients and their larger advisor teams to evaluate decisions and opportunities and implement decisions, whether providing investment recommendations or discussing income tax considerations that will support their lifestyle and financial objectives during their working years, in retirement and beyond. By collaborating early, we can help to design and implement a plan that flexes through the stages of life, while incorporating a plan for lifetime giving and craﬅing a legacy for their family.
Speak with your client team to learn more about the strategies we can deploy to help corporate executives.
Choice of advisor does not guarantee future success. Investing involves risk.
This publication is designed to provide general information about ideas and strategies. It does not constitute legal advice and is not intended to be all-inclusive. It is for discussion purposes only since the availability and effectiveness of any strategy are dependent upon your individual facts and circumstances. Always consult with your independent attorney, tax advisor, investment manager and insurance agent for final recommendations and before changing or implementing any financial, tax or estate planning strategy.
Trust, fiduciary and investment management services are provided by Bank of America, N.A., Member FDIC, and U.S. Trust Company of Delaware, both wholly owned subsidiaries of Bank of America Corporation (“BofA Corp.”), and its agents.