As we approach the final stretch of the year, many of our clients—especially corporate executives—are facing some of the most impactful financial decisions they’ll make all year. The fourth quarter is the season to tighten up benefit elections, fine-tune cash flow strategies, and make smart tax decisions that can ripple into future years.
The two areas where we often see the most value added during this time of year: reviewing executive benefit elections and making thoughtful decisions around deferred compensation.
Note: We recently put together a robust checklist for executives who are seeking a better grasp of the tax planning strategies that should be happening this time of year. To receive it, send us an email with the phrase “Tax Guide” in the message.
Executive Benefit Elections: Why Q4 Matters
For executives, open enrollment season is the opportunity to re-evaluate a full suite of benefits, many of which carry important tax implications. This is when you’re selecting what your benefit structure will look like, not only for the coming year but also considering the ripple effects on future planning.
Here’s what that process often includes:
- Health Coverage Review: Reviewing current options and supplemental coverage like short- and long-term disability, or employer-provided life insurance. We assess whether the coverage still meets your family’s needs.
- Maximizing Pre-Tax Accounts: We revisit contributions to HSAs and 401(k)s. Often, income has shifted over the year due to bonuses, salary adjustments, or RSU vesting. Plus, with government limits adjusting yearly, we want to ensure you’re contributing as much as possible, or at least aligning with your cash flow.
- Tax-Smart Strategy: Benefits are more than checkboxes. They are tools for strategic planning. We aim to ensure benefits like HSAs, 401(k)s, and supplemental options are aligned not just with coverage, but also with your broader tax plan.
- Avoiding Surprises: In Q4, we also get clarity on where things landed for the year like how much income came in, how much tax has already been withheld, and where gaps might be. In our experience, companies often under-withhold on RSUs or bonuses. This is the time to flag that and plan for it.
This is the kind of planning that should be happening proactively, not reactively. Reviewing elections and taking action in Q4 can prevent scrambling during tax season.
Deferred Compensation: Thinking Ahead (Way Ahead)
Deferred compensation plans can be incredibly powerful, but they also require precision. First things first: this isn’t a "preferred" asset. When you defer compensation, you're technically leaving that income with your employer until a later date. That means assessing the financial strength of the company is step one.
From there, we’re looking at a multi-layered decision:
- How much can (and should) you defer? We evaluate salary, bonus, equity vesting, and your overall income to determine the right number
- What’s your cash flow need in the coming year? It doesn’t help to defer too much and end up in a liquidity crunch.
We often walk through scenarios like:
- Should you defer 10% or 25%?
- When should you start taking those deferred payments? Immediately upon retirement or years later?
- What investment options are available within the deferred comp plan, and how can those be structured to grow that income over time?
We also want to make sure clients understand the tax implications of receiving that income later. Even if you’re not working anymore, deferred comp counts as income. Timing it right, especially across state lines or against your other sources of income, can mean a significant tax difference.
As always, we coordinate with your CPA or tax attorney to make sure nothing gets missed. This is one of those areas where a collaborative approach really makes a difference.
Final Thought: Start the Conversation Now
Waiting until the last week of December—or worse, the first week of April—can limit your options. Early, intentional planning allows for a more proactive, thoughtful approach.
If you’re a corporate executive, don’t let these decisions happen by default. Q4 is your moment to be proactive, take a closer look at your benefits, and position your deferred compensation to work for you and not against you.
Take the time now to review what’s in front of you, ask the right questions, and loop in your financial team. You’ll thank yourself come tax season and beyond.
If you'd like to dig deeper into this or see how these strategies apply to your situation, feel free to reach out. We’re always happy to have the conversation.
Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.