New Update: Healthcare Costs Increasing by Over 60% in Some States. Will you be impacted?

Arconic Insights: Smart Strategies for Minimizing Capital Gains Tax with Asset Transfers to Parents

Healthcare Provider Update: Healthcare Provider for Arconic Arconic, a leading provider of aluminum and aerospace products, collaborates with various insurance companies to offer healthcare benefits to its employees. The primary healthcare providers that partner with Arconic vary by location and include well-known insurers like UnitedHealthcare, Aetna, and Blue Cross Blue Shield, among others. Healthcare Cost Increases in 2026 In 2026, healthcare costs are expected to rise significantly, impacting employers and employees alike, including those at Arconic. The projected average increase in health benefit costs could reach nearly 8.5%, attributed to a perfect storm of higher medical expenses and the potential expiration of enhanced federal premium subsidies from the Affordable Care Act (ACA). Many employers are responding by considering changes to plan designs that shift more costs to employees. This could lead to out-of-pocket premium increases that may exceed 75% for a large portion of the workforce, making it critical for companies like Arconic to strategize their healthcare offerings effectively to mitigate financial impacts on their employees. Click here to learn more

When Arconic employees sell appreciated assets such as stocks or real estate, they might face significant capital gains taxes. However, an effective tax reduction strategy known as an upstream transfer can be used. This involves transferring these assets to one's parents and later reclaiming them, potentially lowering the taxable amount. This method proves especially beneficial for those with substantial wealth, as it can reduce capital gains and potentially double the amount that their children inherit without triggering estate taxes. Here's a detailed analysis of how upstream transfers work, their benefits, and the associated risks.

Understanding Upstream Transfers

For Arconic employees who have seen a significant increase in the value of their assets over time, transferring these assets can result in hefty capital gains taxes. In the United States, capital gains tax is calculated based on the difference between the sale price of an asset and its original purchase price (known as the cost basis). Long-term capital gains tax can be as high as 23.8%, including the net investment income tax. (Source: IRS - Capital Gains Tax Rates)

Upstream transfers benefit from a tax exemption that allows for a step-up in basis upon inheritance. This means that when an individual inherits an asset, its cost basis is adjusted to its market value at the time of the decedent’s death. This adjustment can significantly reduce the taxable amount on any capital gains when the asset is sold. (Source: IRS - Inherited Property Basis)

For instance, consider a Arconic employee who holds stock that has appreciated by $1 million since purchase. If sold, they would face about $238,000 in taxes at a 23.8% rate. However, by transferring the stock to their parents and reclaiming it after their demise, the employee would only be taxed on any appreciation that occurs after their parents' death, potentially minimizing capital gains tax liabilities.

Tax Concerns and Estate Planning Advantages

One major advantage of upstream planning for Arconic employees is its ability to reduce or eliminate capital gains taxes. However, this strategy also offers significant estate planning benefits. The current estate tax exemption is set at $13.61 million per individual (or $27.22 million for married couples), allowing individuals to transfer or acquire assets up to this threshold without incurring estate taxes. (Source: IRS - Estate Tax Exemption Limits)

Wealthy families can use additional transfers to reduce estate tax deductions. By transferring their assets to parents who have not yet used their tax exemption, families can preserve more wealth from estate taxes. The popularity of asset transfers has increased since the federal estate tax exemption status was introduced by the Tax Cuts and Jobs Act of 2017. However, this increased exemption is scheduled to expire at the end of 2025 unless extended by Congress, prompting many to consider this strategy before the exemption amount decreases. (Source: Tax Cuts and Jobs Act - IRS Summary)

Essential Details and Risks

While upstream transfers are helpful for tax reduction, they also involve risks. A primary concern is the potential loss of control over the assets when transferred to parents. In most cases, parents have the decision-making power regarding their assets, including their transfer or sale during their lifetime. This setup allows parents to decide to share the estate with other successors, such as a future spouse or other children. Moreover, parents’ creditors could claim the assets, complicating the situation further.

Additionally, family dynamics play a crucial role in the success of upstream planning. The involvement of multiple family members, including siblings and spouses, can lead to conflicts and disagreements. For example, parents might alter their estate plan to favor one child, even if it was another who originally provided the assets. Open and transparent communication among all parties is essential to minimize the potential for family conflict.

Timing and Legal Considerations

Timing is another critical factor in upstream transfers. Typically, these transfers are most effective when parents are older or have limited longevity. The strategy is usually recommended when parents are within their last seven years of life and are not expected to live beyond five years. However, if parents pass away within a year after the asset transfer, the basis step-up is disallowed, undermining one of the strategy’s main benefits. (Source: IRS - Step-Up in Basis Rules)

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Furthermore, the value of transferred assets can fluctuate over time, as can the estate tax exemption. If assets significantly appreciate after the transfer or if the estate tax deduction is reduced, an unexpected tax liability could occur for the family. This underscores the importance of a rigorous plan and ongoing monitoring of the situation to keep the transfer tax-efficient.

In Conclusion

Future transfers offer an effective strategy for reducing tax liabilities on capital gains and enhancing wealth transmission to future generations. However, this method requires careful consideration of the legal, financial, and family dynamics involved. Wealthy individuals, including those at Arconic considering an upstream plan, should consult with experienced estate planning professionals to determine if this strategy aligns with their overall financial goals and family circumstances. Proper planning and implementation can make upstream transfers a valuable tool in a comprehensive tax and estate planning strategy.

What retirement benefits and options are available to employees of Arconic Corporation under the Arconic Corp. Pension Plan A, and how do these benefits change based on factors such as age, service length, and retirement category? Employees of Arconic Corporation should understand their eligibility requirements for normal retirement, early retirement, and disability benefits as outlined in the company's pension plan documentation.

The Arconic Corp. Pension Plan A provides retirement benefits based on a formula that considers average earnings and service length, with normal retirement eligibility at age 65 and at least five years of service. Early retirement is available at age 55 with 10 years of service, with benefits reduced based on actuarial assumptions. Disability benefits are available after 10 years of service, and preretirement death benefits offer 50% of accrued benefits to surviving spouses(Arconic Corporation_ Ja…).

How does the frozen state of benefits and service accruals impact current and future retirees at Arconic Corporation? Employees should evaluate how the freeze, effective April 1, 2018, affects their retirement planning and what measures they can take based on their individual circumstances to optimize their retirement benefits.

The frozen state of benefits and service accruals, effective April 1, 2018, means no new service credits or compensation increases are factored into pension calculations for current employees. This freeze affects retirement planning as employees must now rely on frozen benefits and other savings plans to meet retirement needs. It’s important for employees to reassess their financial goals and consider additional investments to optimize retirement benefits(Arconic Corporation_ Ja…).

In what ways can Arconic Corporation employees ensure they meet the requirements for spousal benefits outlined in the pension plan, especially regarding preretirement and postretirement scenarios? Understanding the specifics of eligibility and benefits, such as the surviving spouse benefit calculations, is crucial for employees planning for retirement.

To ensure eligibility for spousal benefits, employees need to meet certain requirements. Preretirement surviving spouse benefits require at least five years of service, and postretirement spousal benefits reduce the participant’s monthly benefit by 5%, with 50% of the reduced amount paid to the spouse if the participant dies first. Employees should understand these provisions to plan for their family’s financial security in retirement(Arconic Corporation_ Ja…).

What are the implications of the actuarial assumptions used by Arconic Corporation in valuing its pension obligations, and how do these assumptions affect the funding of the retirement plan? Arconic Corporation employees should examine how changes in interest rates and mortality tables influence the company's ability to meet its pension obligations.

Actuarial assumptions used in Arconic Corp.’s pension valuations, such as interest rates and mortality tables, directly impact the funding of retirement plans. Changes in these assumptions can affect the pension plan’s obligations and the amount of required contributions, making it important for employees to understand how these factors influence the stability and sufficiency of their retirement benefits(Arconic Corporation_ Ja…).

Can you explain the process by which Arconic Corporation employees can appeal decisions related to their pension benefits, and what support does the company provide during this process? Understanding the proper channels for appeals and the types of documentation required can be vital for employees facing issues with their pension benefits.

Employees can appeal pension benefit decisions through Arconic Corporation’s formal process, which includes submitting an appeal with supporting documentation. The company provides guidelines on what documentation is required, and employees should follow these closely to ensure their case is reviewed thoroughly. The support provided can include detailed responses to clarify benefit calculations and decisions(Arconic Corporation_ Ja…).

What resources are available to Arconic Corporation employees to help them make informed decisions about their retirement benefits, and how can they access these resources efficiently? Employees should know where to find comprehensive materials and support services concerning their retirement plans.

Arconic Corporation offers various resources to assist employees in making informed decisions about their retirement benefits. Employees can access comprehensive plan documents, financial planning tools, and counseling services through the company’s HR department and retirement plan administrators to ensure they fully understand their options(Arconic Corporation_ Ja…).

How does the Arconic Corporation define "average earnings" for calculating retirement benefits, and what methodologies are in place to ensure accuracy in these calculations? Understanding the basis for average earnings will allow employees to better project their pension benefits and prepare for retirement.

Average earnings, used in calculating retirement benefits, are defined as the average of the five highest consecutive calendar years of compensation within the last ten years for most participants. For certain participants, different rules apply based on service and plan conditions. Employees can review their earnings history to ensure accurate calculations and projections for retirement planning(Arconic Corporation_ Ja…).

What criteria does Arconic Corporation use to determine eligibility for deferred vested benefits, and how can employees maximize their advantages in this area? Employees need to be aware of the vesting schedule and how to plan for potential career transitions while maintaining their benefits.

Eligibility for deferred vested benefits in Arconic Corporation’s plan requires five years of service, and benefits can commence as early as age 55, with reductions based on actuarial calculations. Employees should plan career transitions carefully to maximize their vested benefits, especially when considering leaving the company before retirement(Arconic Corporation_ Ja…).

How can Arconic Corporation employees prepare for the potential tax implications of their pension benefits upon retirement, especially in light of IRS regulations for 2024? Being informed about tax strategies related to retirement income can significantly enhance retirees' financial wellbeing.

Employees preparing for retirement should understand the tax implications of pension benefits, particularly in light of IRS regulations for 2024. Strategies such as tax deferral and proper timing of distributions can help minimize the tax burden on retirement income, significantly enhancing financial outcomes(Arconic Corporation_ Ja…).

What contact methods does Arconic Corporation provide for employees wishing to learn more about their pension plan details, and how can employees best utilize these methods to get their queries resolved? Understanding the effective ways to communicate with the company for assistance is key for employees navigating their retirement benefits.

Arconic Corporation provides multiple contact methods for pension-related inquiries, including direct access to HR representatives and pension plan administrators. Employees are encouraged to utilize these resources effectively by preparing questions in advance and keeping detailed records of their communications for follow-up and clarity(Arconic Corporation_ Ja…).

With the current political climate we are in it is important to keep up with current news and remain knowledgeable about your benefits.

Arconic has announced a major restructuring plan that includes significant layoffs across its North American facilities. The restructuring is aimed at streamlining operations and reducing costs amid ongoing economic uncertainties. Additionally, Arconic is revising its pension and 401(k) benefits in response to shifting market conditions and regulatory changes.