Evergy Employees: Smarter Ways to Manage Taxes on Appreciated Stock
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'Evergy 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.
'Evergy 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.' Evergy 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. Evergy 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 Evergy 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 Evergy 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 Evergy 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 Evergy 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 Evergy 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 Evergy 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 purpose of Evergy's 401(k) Savings Plan?
The purpose of Evergy's 401(k) Savings Plan is to help employees save for retirement by providing a tax-advantaged way to invest a portion of their income.
How can I enroll in Evergy's 401(k) Savings Plan?
You can enroll in Evergy's 401(k) Savings Plan by accessing the employee benefits portal or contacting the HR department for enrollment instructions.
What types of contributions can I make to Evergy's 401(k) Savings Plan?
Employees can make pre-tax contributions, Roth (after-tax) contributions, and, if eligible, catch-up contributions to Evergy's 401(k) Savings Plan.
Does Evergy offer a company match for contributions made to the 401(k) Savings Plan?
Yes, Evergy offers a company match on employee contributions to the 401(k) Savings Plan, which helps enhance your retirement savings.
What is the vesting schedule for the company match in Evergy's 401(k) Savings Plan?
The vesting schedule for the company match in Evergy's 401(k) Savings Plan typically follows a graded vesting schedule, which means you earn ownership of the match over a period of time.
How often can I change my contribution amount to Evergy's 401(k) Savings Plan?
You can change your contribution amount to Evergy's 401(k) Savings Plan at any time, subject to the plan's rules and limits.
Are there any fees associated with Evergy's 401(k) Savings Plan?
Yes, there may be administrative fees associated with Evergy's 401(k) Savings Plan, which are disclosed in the plan documents provided to employees.
What investment options are available in Evergy's 401(k) Savings Plan?
Evergy's 401(k) Savings Plan offers a variety of investment options, including mutual funds, target-date funds, and other investment vehicles to suit different risk tolerances.
How can I access my account information for Evergy's 401(k) Savings Plan?
You can access your account information for Evergy's 401(k) Savings Plan through the plan's online portal or by contacting the plan administrator.
Can I take a loan from my Evergy 401(k) Savings Plan?
Yes, Evergy's 401(k) Savings Plan allows participants to take loans under certain conditions, subject to the plan's rules and limits.
With the current political climate we are in it is important to keep up with current news and remain knowledgeable about your benefits.
For Evergy, the company offers both a pension plan and a 401(k) plan for its employees. The Evergy pension plan, often referred to as the defined benefit plan, requires employees to meet certain years of service and age qualifications to become eligible. The pension formula is based on the final average pay and years of service, which is typical for defined benefit plans. Non-union employees are generally enrolled in the 401(k) plan, which includes company matching contributions.
The Evergy 401(k) Savings Plan, established in 1988, is the primary retirement savings option for non-union employees, while some union employees may still have access to a traditional pension plan. The specific eligibility, contribution limits, and matching details are provided in the company’s benefits documentation, typically through internal HR portals or detailed benefits guides.
Restructuring and Layoffs: Evergy announced a restructuring plan in early 2024 aimed at optimizing its operational efficiency. The plan included a reduction of approximately 5% of its workforce across various departments. This move was intended to streamline operations and reduce costs amid fluctuating energy prices and regulatory changes. Source: Bloomberg
Evergy grants stock options and RSUs as part of its employee compensation package. According to Evergy's 2022 Annual Report (Source: Evergy 2022 Annual Report, Page 45), stock options are typically offered to senior executives and key employees. RSUs are also granted to attract and retain talent, with specific vesting schedules outlined in the report.
Evergy utilizes stock options and RSUs to align employee interests with company performance. The 2022 Compensation Disclosure (Source: Evergy 2022 Proxy Statement, Page 32) details that stock options are granted at an exercise price equal to the fair market value on the grant date. RSUs are granted based on performance metrics and time-based vesting criteria.
In 2023, Evergy continued to offer stock options and RSUs as part of its compensation strategy. According to the 2023 Annual Report (Source: Evergy 2023 Annual Report, Page 50), stock options are given to senior management and high-performing employees. RSUs are awarded based on individual and company performance metrics.
Evergy offers a comprehensive health benefits package designed to support the well-being of its employees and their families. Their benefits include a choice of medical, dental, and vision plans, as well as life and accident insurance, long-term disability, and flexible spending accounts for medical and dependent care. The medical plans are administered through Blue Cross Blue Shield of Kansas City, and Evergy also offers SavRx for union employees as a pharmacy benefit plan (evergy.com) (Evergy | Newsroom).
Specific healthcare-related acronyms used by Evergy include FSA (Flexible Spending Account) and HSA (Health Savings Account), both of which allow employees to set aside pre-tax dollars for medical expenses. Evergy’s health benefits include paid parental leave, which is part of their broader focus on work-life balance (evergy.com).
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