Cornerstone Building Brands Employees: Smarter Ways to Manage Taxes on Appreciated Stock
'Cornerstone Building Brands employees with concentrated stock positions may benefit from thoughtful tax planning that allows for tax deferral while balancing liquidity, compliance, and long-term compounding,' Wesley Boudreaux, a representative of The Retirement Group, a division of Wealth Enhancement.
'Cornerstone Building Brands employees who hold highly-appreciated stock may want to consider tax-efficient strategies that help mitigate their liabilities while aligning with their overall retirement goals,' Patrick Ray, a representative of The Retirement Group, a division of Wealth Enhancement.
In this article, we will discuss:
How taxes can affect investment returns, particularly on concentrated stock positions.
Exchange funds and options-based strategies as methods for tax deferral and diversification.
Alternative planning techniques outside ETFs, including charitable trusts and gifting strategies.
By Carlos Hernandez, Wealth Enhancement advisor
When it comes to driving portfolio returns, many investors aim to keep management fees low by investing in low-cost index funds and exchange-traded funds (ETFs). While fees matter, however, the real culprit for lower-than-anticipated performance is taxes.
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Wealth Enhancement advisor Carlos Hernandez explains: 'By losing less to taxes each year, investors have access to more capital that can continue to compound over time. This makes tax deferral an important part of an effective financial plan.' Cornerstone Building Brands employees looking for long-term growth strategies could benefit by understanding how to better manage their investment tax burdens.
Trade Money
One area where taxes can take a toll is on the sale of company stock or other concentrated investment positions. Cornerstone Building Brands professionals looking to diversify could face significant capital gains taxes on an outright sale. One way to diversify without triggering immediate capital gains is through exchange funds. By contributing their highy-appreciated stock to a pooled fund, investors can trade their concentrated holdings for shares in a diverse basket of securities. This method can be used by Cornerstone Building Brands employees who want to diversify while postponing taxable events.
Although this method allows for tax deferral, it also requires investors to hold the exchange fund for a period of time, typically seven years.
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This could create a challenge for investors who require liquidity. Additionally, these funds are often exclusively accessible to wealthy, accredited investors—something Cornerstone Building Brands executives should carefully evaluate.
Funds Based on Options
Another way to mitigate taxes on the sale of highly-appreciated stock is by using options contracts. The idea is to hedge risk with put options while covering the cost of those puts by selling call options—a strategy called 'collaring'. From there, the strategy reverses, with investors selling put options and using the proceeds to buy call option on an equity or bond index.
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If managed effectively, this helps to diversify a concentrated portfolio while still maintaining liquidity.
Given the complexity of this strategy, meticulous planning is necessary. It's generally recommended that investors work with an experienced financial advisor before pursuing this approach.
Things to Be Aware of
Although these strategies can be beneficial for Cornerstone Building Brands employees who hold highly-appreciated stock, caution is recommended. There are costs associated with these approaches, and potential liquidity risks. Additionally, the IRS may eventually contest such arrangements because their tax status has not been thoroughly examined—something Cornerstone Building Brands retirees should keep top of mind.
'Tax drag reduction strategies can be effective, but they must be assessed through the lens of risk, liquidity, cost, and compliance,' warns Carlos Hernandez. What is appealing in theory must hold up to inspection in the real world.
Alternative Strategies
Although they show promise, investors with highly-appreciated stock or those looking to postpone gains have other alternatives besides exchange funds or options. Other tactics could include:
- Prepaid variable forwards (subject to IRS regulations, contracts to sell at predetermined terms in the future).
- Charitable remainder trusts (CRTs), which allow investors to donate appreciated stock to a charitable trust and receive a stream of regular income in return.
- Donor-advised funds (DAFs), which provide investors with a tax deduction for the fair market value of the appreciated stock they donate.
- Other gifting techniques, such as direct donations to charity or family.
Each has its own set of guidelines, advantages, and disadvantages. To limit unnecessary taxes or violating the constructive sale regulations, careful planning is necessary for Cornerstone Building Brands professionals managing complex portfolios.
The Bottom Line
Although the movement to mitigate the tax burden on investments is not new, the instruments are changing. Both exchange funds and options-based structures offer investors a way to manage tax liabilities, especially for Cornerstone Building Brands employees who hold highly-appreciated stock.
In the end, taxes are unavoidable. However, with the correct set of instruments, they can be controlled and postponed. 'The real value comes from aligning tax strategy with investment strategy,' summarizes Carlos Hernandez.
What is the 401(k) plan offered by Cornerstone Building Brands?
The 401(k) plan at Cornerstone Building Brands is a retirement savings plan that allows employees to save a portion of their paycheck before taxes are taken out.
How can I enroll in the 401(k) plan at Cornerstone Building Brands?
Employees can enroll in the Cornerstone Building Brands 401(k) plan through the company’s HR portal or by contacting the HR department for assistance.
Does Cornerstone Building Brands match employee contributions to the 401(k) plan?
Yes, Cornerstone Building Brands offers a matching contribution to the 401(k) plan, which helps employees boost their retirement savings.
What is the maximum contribution limit for the 401(k) plan at Cornerstone Building Brands?
The maximum contribution limit for the Cornerstone Building Brands 401(k) plan is set according to IRS regulations, which may change annually.
Can I change my contribution percentage for the 401(k) plan at Cornerstone Building Brands?
Yes, employees can change their contribution percentage for the Cornerstone Building Brands 401(k) plan at any time through the HR portal.
What investment options are available in the Cornerstone Building Brands 401(k) plan?
The Cornerstone Building Brands 401(k) plan offers a variety of investment options, including mutual funds and target-date funds, to suit different risk tolerances.
When can I start withdrawing from my 401(k) plan at Cornerstone Building Brands?
Employees can typically start withdrawing from their Cornerstone Building Brands 401(k) plan at age 59½, but there are specific conditions and options available.
Is there a loan option available through the 401(k) plan at Cornerstone Building Brands?
Yes, Cornerstone Building Brands allows employees to take loans against their 401(k) savings, subject to certain terms and conditions.
What happens to my 401(k) plan if I leave Cornerstone Building Brands?
If you leave Cornerstone Building Brands, you have several options for your 401(k) plan, including rolling it over to an IRA, leaving it with the plan, or cashing it out.
How often can I change my investment allocations in the Cornerstone Building Brands 401(k) plan?
Employees can change their investment allocations in the Cornerstone Building Brands 401(k) plan as often as they like, typically through the HR portal.
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For more information you can reach the plan administrator for Cornerstone Building Brands at 5020 Weston Pkwy. Cary, NC 27513; or by calling them at 919-677-3900.
Further Information for Cornerstone Building Brands* Employees
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