The 5 not-so-obvious questions corporate executives should ask their investment professionals this quarter

The 5 not-so-obvious questions corporate executives should ask their investment professionals this quarter


In hundreds of conversations with corporate executive clients over the last few months of this curveball-after-curveball year, I’ve been struck by how many have made the same incorrect assumptions.

First assumption: there are few, if any, financial opportunities out there. Second: if there are opportunities, they hinge on either a Trump or Biden win.

Some good news. Regardless of who wins the presidential election, you may be able to net some wins this quarter that inch you closer to your long-term financial goals. This fall is not just a significant moment for our nation, it is a big few months for your money.

Given an unending cascade of novel corporate and personal challenges and an onslaught of uncertainty (the election, a second Covid-19 wave, a struggling economy, the opening and closing of schools and businesses), it’s unsurprising that in an April 2020 Nationwide Financial survey, 80 percent of respondents said they had lost control of their ability to manage their investments and finances since the pandemic hit.

Additionally, many executives have become understandably caught up in other high priorities and, as a result, shut down any personal financial decision making. Instead, they’ve been waiting to see what might happen next.

But if you pick up the phone to your investment professional (although they should be proactively reaching out to you) and ask them the key questions below, you might replace feelings of your finances getting away from you with clarity and greater control around your future.

Time and again, clients have been reenergized after we’ve delved into how existing opportunities might (or might not) benefit the nuances of their unique situation.

The most critical point is to simply have the conversation. Similar to how the CEO of your publicly traded company talks to your CFO regularly, as the CEO of your family, you need to speak with your CFO regularly. That CFO is your investment professional.

Here’s what to ask:

1. Should I make any changes to my I.R.A. and Roth I.R.A. allocations?

To avoid a higher tax rate in the future, you should consider taking some of the money from your traditional I.R.A. and putting it into a Roth I.R.A. With a traditional I.R.A., you pay taxes as soon as you withdraw funds. But with a Roth I.R.A., you’re taxed on the amount you transfer over and the account’s qualified earnings are tax-free.

Known as a Roth conversion, it represents an opportunity to potentially keep more money in your pocket if you can shoulder the tax bill upfront. You can learn more about these types of accounts in this New York Times article, which I enjoyed contributing to.

2. Should I make any changes to my deferred compensation program?

‘Tis the season to mull over your company’s benefits and decide how to best leverage them to meet your long-term financial goals.,/p>

If you’re currently maximizing your 401(k) contributions, participating in your company’s deferred compensation program would allow you to increase the amount that you’re setting aside. This amount is untaxed until your retirement or a day you choose.

Because you’re more likely to be in a lower tax bracket in retirement than when you were working, these programs can be a great pre-tax savings tool. However, upping any allocations only makes sense if you believe in your company’s future financial strength. You don’t want to go over your skis.

3. Should I exercise any of my stock options?

If you have incentive stock options (ISOs), you might have the opportunity to maximize the value of your holdings and minimize your future tax liability by acting this quarter.

The difference between your ISO’s exercise price and the ISO’s grant price is subject to Alternate Minimum Tax (AMT). This stock should then be held for one year to qualify for long-term capital gains tax instead of ordinary income tax. Normally long-term capital gains tax is lower than ordinary income tax. We believe the AMT credit will be higher in 2020 than it will be in 2021 or 2022, if there are indeed changes to the tax law. As such, we’re advising clients to consider exercising some ISOs this quarter.

4. How might the estate tax situation change? And what would that mean for my family and loved ones?

As we’ve all learned in 2020, no one can predict what’s coming down the pike. In the case of estate planning, however, we can point to existing law.

Currently, under a 2017 Republican tax overhaul, single individuals can pass on up to $11.5 million tax-free ($23 million for a married couple) to their family members and children in property, stocks and other assets.

As such, this might be an opportune time to make some large gifts to your loved ones because the exemption, which is double the threshold before 2017, is set to end in 2026. Of course, it could end sooner so it’s worth reviewing your gift-giving plans now.

To potentially maximize your financial legacy, you should also ask your investment professional about creating a grantor retained annuity trust (GRAT) as a way to transfer shares to family members. Low interest rates contribute to the appeal of this tax-efficient tool, especially for corporate executives who’ve accumulated shares and want to share their wealth.

5. Should I accelerate giving to charitable organizations that I care about?

If you are philanthropically inclined, the 2020 Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) allows you to fully deduct gifts to a charitable organization [i.e., 501(c)(3)] equal to as much as 100 percent of your adjusted gross income. Previously, you could only deduct up to 60 percent. A possible downside is that the donation must be cash.

This 100 percent deduction only applies in 2020 so time is tight if you’re interested in discussing this opportunity with your investment professional. Some of my clients are considering donating more than one year’s worth of contributions now to hopefully make a larger and more immediate impact at a time when many organizations need it most.

After discussing the above five questions with your investment professional, you may uncover an opportunity that advances your long-term financial goals - no matter the election outcome in November. This conversation won’t just allow you to hone in on your options, it might just bring you some hope.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. All tax and legal matters should be discussed with a qualified tax or legal advisor. Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion. A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax.