More On Tax Planningfrom The Advisor's Professional Library
- Annuities: Variable Annuities Annuities are hot. The tax rules vary with the circumstances. Advisors must be aware of these intricacies when discussing annuities with clients.
- Annuities: Estate Tax The value of certain types of annuities may be included in an estate’s value. Understanding the intricacies of these inclusions is a critically important aspect of estate planning.
Stock plans offer employees more opportunities than they are aware of, and also contain pitfalls of which many participants are ignorant, says a study released Tuesday by Fidelity Investments.
According to the study, titled the “Fidelity Stock Plan Services Study,” not only do participants fail to understand how their stock plans work (52% could only “generally” explain it, while 11% said they couldn’t even take a stab at it), but many (35%) have sold stock from the plan without understanding the tax implications of the sales.
Among the 70% who sold stock they obtained through their company’s stock plan, 26% used the proceeds to pay down debt or pay bills, and 11% used the money for an emergency. Yet taking care of one obligation without being familiar with the tax consequences of their actions could lead to additional problems in trying to satisfy tax liabilities. Despite that, 10% do not research investment information and 15% make their decisions alone, with no input; another 13% ask friends or family for advice. Just 18% go to an investment advisor, while 20% go to brokerage houses.
Joan Bloom, senior vice president in Fidelity’s Stock Plan Services business, said in a statement, “Our research indicates that, although stock plan participants are in many ways financially savvy and save aggressively, there remains a clear need for better education on how stock plan assets can contribute to long-term financial success.”
The company suggests a number of recommendations to help stock plan participants make wiser decisions regarding retaining or disposing of stock. They include:
- Exercise stock options before they expire
- Research the tax consequences of stock option grants
- Exercise existing stock grants after leaving an employer
- Don’t concentrate too much in a single company stock
- Take advantage of a company’s employee stock purchase plan.