The Impact of Net Unrealized Appreciation Election and Company-Owned Stock in a Tax-Exempt Structure

Abstract

For over half a century, companies have offered employees stock in various forms. The offerings have created concentrated stock positions for senior executives and many employees throughout the enterprise. When company-owned stock resides within qualified retirement plans or tax-exempt structures, current and future tax treatment becomes a major concern. Proper analysis of the relevant options can significantly affect income-generating capabilities for many years. Many employers are not informed about the alternatives available to investors regarding plans that may have been created decades earlier. This article examines the tax treatment associated with net unrealized appreciation and how investment objectives, after-tax income objectives, and tax rates can affect this important decision.

TOPICS: Security analysis and valuation, options, retirement, legal/regulatory/public policy