Huntsman Employees: Smarter Ways to Manage Taxes on Appreciated Stock
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'Huntsman 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.
'Huntsman 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.' Huntsman 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. Huntsman 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 Huntsman 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 Huntsman 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 Huntsman 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 Huntsman 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 Huntsman 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 Huntsman 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.
The Huntsman 401(k) Savings Plan is a retirement savings plan that allows employees of Huntsman to save a portion of their paycheck before taxes are taken out.
How can I enroll in the Huntsman 401(k) Savings Plan?
Employees can enroll in the Huntsman 401(k) Savings Plan by visiting the company's benefits portal and completing the enrollment process online.
What is the employer match for the Huntsman 401(k) Savings Plan?
Huntsman offers a competitive employer match for contributions made to the 401(k) Savings Plan, which helps employees maximize their retirement savings.
At what age can I start contributing to the Huntsman 401(k) Savings Plan?
Employees can start contributing to the Huntsman 401(k) Savings Plan as soon as they are eligible, typically upon their date of hire.
What types of contributions can I make to the Huntsman 401(k) Savings Plan?
Huntsman allows employees to make pre-tax contributions, Roth (after-tax) contributions, and catch-up contributions if they are age 50 or older.
How often can I change my contribution percentage for the Huntsman 401(k) Savings Plan?
Employees can change their contribution percentage for the Huntsman 401(k) Savings Plan at any time, typically through the benefits portal.
Does Huntsman offer investment options within the 401(k) Savings Plan?
Yes, the Huntsman 401(k) Savings Plan offers a variety of investment options, including mutual funds, stocks, and bonds, to help employees grow their savings.
What happens to my Huntsman 401(k) Savings Plan if I leave the company?
If you leave Huntsman, you have several options for your 401(k) Savings Plan, including rolling it over to an IRA or a new employer's plan, or cashing it out.
Can I take a loan against my Huntsman 401(k) Savings Plan?
Yes, Huntsman allows employees to take loans against their 401(k) Savings Plan, subject to certain terms and conditions.
Are there penalties for early withdrawal from the Huntsman 401(k) Savings Plan?
Yes, early withdrawals from the Huntsman 401(k) Savings Plan may incur penalties and taxes unless specific conditions are met.
With the current political climate we are in it is important to keep up with current news and remain knowledgeable about your benefits.
“Huntsman Pension Plan.”
Years of Service: Employees generally need to have at least 5 years of service to be vested in the plan.
Age Qualification: Employees typically need to reach the age of 55 to begin receiving benefits, though specific conditions may apply.
Pension Formula: The pension formula often depends on a combination of years of service and final average salary. Specific details are outlined in the plan documents.
401(k) Plan Name: The 401(k) plan is known as the “Huntsman 401(k) Plan.”
Eligibility: Employees are eligible to participate in the 401(k) plan once they complete 30 days of service.
Plan Features: Includes employer matching contributions up to a certain percentage of employee contributions, and a range of investment options.
Restructuring and Layoffs: In early 2024, Huntsman Corporation announced a restructuring initiative aimed at streamlining operations and improving efficiency. This included layoffs primarily in their manufacturing and administrative divisions. The company cited ongoing economic uncertainty and a need to adapt to shifting market demands as reasons for these changes. Addressing this news is crucial due to the current economic volatility and its impact on employment and corporate strategies. Understanding these shifts can help employees and investors navigate the uncertain landscape and make informed decisions.
Huntsman Corporation offered stock options and RSUs as part of their equity compensation plan. Stock options are typically granted to executives and key employees, while RSUs are often given to senior management and other key contributors.
Healthcare Benefits Overview: Huntsman provides a comprehensive benefits package, including medical, dental, and vision insurance. Their plans include options for preventive care, prescription drug coverage, and access to various healthcare networks.
Healthcare Terms and Acronyms:
HDHP: High Deductible Health Plan
HSA: Health Savings Account
FSA: Flexible Spending Account
EAP: Employee Assistance Program
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