In her final year working, we recommended that our soon-to-be-retired client adjust her 401(k) contribution percentages to take advantage of pre-tax Roth and after-tax treatment. This action allowed us to roll the after-tax portion out of her 401(k) and into her Roth IRA, which will grow tax-free in perpetuity.
We worked with her to determine the cost basis on her company stock in her 401(l) account to determine if net unrealized appreciation (NUA) would be advantageous at retirement. Finally, we opened a Self-Directed Brokerage Account through her 401(k) to invest in low-cost, well-diversified exchange traded funds (ETFs).
Our client retired as project manager in March 2023. She has multiple income sources for retirement, including a pension, nonqualified deferred compensation, and a 401(k). The original plan was to utilize the nonqualified deferred compensation with a 5-year payout to bridge the gap until her pension pays out at age 60. We determined that NUA was not particularly appropriate at this time and decided to keep the assets in her 401(k) and self-directed brokerage account SDBA for now.
Due to recordkeeping issues on the plan custodian’s behalf, our client is unable to start her deferred compensation payout until four years in the future. To ensure cash flow, we recommended the client begin her pension at age 55 to assist with cash flow needs. We can also supplement the pension payouts with distributions from her taxable account by liquidating the most tax-efficient positions. We provided an updated allocation recommendation for her NQSSP account to ensure she is getting the greatest return possible while the assets are in a holding period. We also will work on a new NUA recommendation allocation to see if the circumstances have changed given her new situation.
