Handling ESOP Shares & Taxes

Joe OcchipintiJoe Occhipinti
Wealth Advisor
Warren Street Wealth Advisors


Sometimes an employer’s benefits program can include an employee stock ownership plan, commonly referred to as an ESOP plan. An ESOP plan is an employee benefit that allows its company’s participants to purchase the common stock of their company. Those who participate often receive tax benefits for purchasing these shares, and companies believe that allowing their employees to purchase shares of the company will incentivize employees to perform well and boost the share price.

This is an excellent program to take advantage of if your company provides it, but there is something to be mindful of, which is: How can these shares impact my tax liability?

Well, the tax issue doesn’t become relevant until you approach retirement and begin to think about taking your balance out of the plan. When you become ready to do this, you are presented with two options on how to handle the balance.

Option 1 is to take the shares from the ESOP program and roll them into an IRA. Taxes do not come due, but you will be liable for the taxes when you take a withdrawal from the account. The amount will be taxed at your current ordinary income rates.

Option 2 is to move the shares into a non-retirement account. In this method, the ESOP shares are moved in-kind and you pay ordinary income tax rates on the average cost basis of the shares, which is the average price you paid for all the shares you own and typically below market value. Then when the shares are sold within the account, the amount in excess of cost basis is taxed at long term capital gains rates.



It may seem like you’re paying taxes twice in the second option, but by taking advantage of net unrealized appreciation (or NUA), you might be able to save yourself on taxes in the long run. You see, long term capital gains rates are typically lower than a person’s income tax rates with capital gains being 0, 15, or 20%, so a person would be paying ordinary income tax on a portion, then long term capital gains on the remainder, again assuming the shares have been held for 1 year or longer.

This can be a tricky process, and most employee benefits programs only allow you to execute this process once. Make sure you have it right.

Warren Street Wealth Advisors has worked with employee ESOP shares before and executed NUA strategies. Contact Us today and schedule a free consultation on how to best handle your ESOP shares.


  1. This item  is only used as an illustration of the strategy. Illustration does not indicate how all tax liabilities could play out. All investments carry specific risks and please consult your financial professional before making investment decisions.

Warren Street Wealth Advisors are not Certified Public Accountants (CPA), and this is not considered personal or actionable advice. Please consult with your accountant or financial professional for further guidance on whether an NUA strategy is right for you.

Disclosure: Joe Occhipinti is an Investment Advisor Representative of Warren Street Wealth Advisors, a Registered Investment Advisor. The information posted here represents his opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional.  Nothing in this commentary is a solicitation to buy, or sell, any securities, or an attempt to furnish personal investment advice. We may hold securities referenced in the blog and due to the static nature of content, those securities held may change over time and trades may be contrary to outdated posts.

12 Keys to Retiring from the Oil & Gas Industry with Confidence

12 Keys To Retiring From the Oil & Gas Industry with Confidence

Retirement is coming soon, and you know you should be excited. But some of us have so many questions and concerns about retirement that we’re more nervous than anything else.


We understand.

At Warren Street Wealth Advisors, we’ve helped those inside the oil & gas industry navigate this crucial but confusing time. In the process, we’ve learned local companies’ retirement programs and employee benefits inside and out. So we put together a list of our 12 keys to retiring from the oil & gas industry with confidence.


1. Have A Plan

Nothing else in this post matters if you don’t have a personalized financial plan. We believe this so strongly that building a personalized financial plan is the first thing we do with every one of our clients.

A personalized financial plan is the roadmap to your comfortable, stress-free retirement. You can know your benefits inside-out and be clever about taxes and investments. But if you don’t have a map for navigating your retirement, you’ll never feel confident along the way.


2. Seriously, Have A Plan

I wrote that twice because I wanted to be certain you see how important this is.

Having a plan is essential for any major life decision, and navigating your retirement with wisdom and confidence is certainly part of a major life decision!

OK, let’s move on…


3. Make Sure Your Retirement Timing is Correct

When you go to retire, make sure you are doing so at an advantageous time. Eligibility for annual bonuses, vacation days, or vacation payouts could all be dependent on when you retire from the company.

For some local companies, retiring in April will make you eligible for your next year’s bonus. If you do not work the first quarter, you will be ineligible for the bonus.

So at this company, for example, if you retire in May of 2016, then you would be qualified for 5 months (or 5/12ths) of the 2017 bonus. Remember, it all adds up, and this can be helpful as you begin to transition into retirement.


4. Utilize Your Vacation Time

If you retire at a time where you are eligible for vacation days or can get paid out on the vacation days, use them! You earned the time!

For some companies, each year on January 1st, your vacation time resets and for every month of work, you are eligible for 1/12th of your vacation time (whatever that may be depending on how long you’ve been with the company).

If you don’t want to use your vacation time, then some companies will pay you for the vacation days you do not use. If you had 2 weeks of vacation, they you would get 2 weeks worth of pay.


5. Retire After 55 But Before 59½ Without Paying Penalties

Here’s a scenario we see all the time: you’re 57. You want to retire. You don’t want to wait until you’re 59½ to do it. But you know that there’s a 10% federal tax penalty and a 2.5% California state tax penalty if you take money out of your 401(k) before then. So are you stuck?


Leave some money in the 401(k) to avoid penalties. Some oil & gas companies have provisions in their plans that allow flexibility when it comes to taking withdrawals. Whether this be a one time withdrawal or setting up a monthly distribution, there may be a way to get around those pesky penalties.

There are a lot of moving parts here, but at WSWA, we use these rules to make certain that none of our clients pay penalties. Ever.


6. Budget Your Medical Subsidy

Medical benefits can cost substantially more from some companies in the oil & gas industry while you’re in retirement. Make sure you are properly planning for medical coverage in retirement and making it a part of your budget. We recommend a quick call to your benefits department and ask them to run a calculation of expected cost for your medical insurance in retirement.

A spouse may have a better or more affordable medical benefit. Be sure to examine all of your options.


7. Say “Goodbye” To Credit Card Debt

If you have significant credit card debt, then it’s time for a plan (there it is again!), a budget, and some hard work.

Credit card debt can be intimidating, but you can pay it off! At WSWA, one of our favorite things to see is a client freeing himself or herself from the stress of mounting credit card debt. You may just need some help and a plan.


8. Build Up 6 Months Worth Of Emergency Savings

We’re always optimistic about the future, but sometimes life takes surprising and difficult turns. Wise financial planning means being prepared for those situations.

We recommend that you save at least 6 months worth of living expenses in case of an emergency. So if you need $4,000/month to live, then have around $24,000 saved in savings and checking. That way, you’re prepared for the ups and downs that can happen.


9. Build And Keep A Budget

We get it: it’s no fun to build a budget. But writing down all your income and expenses will help you identify where you can save.

Building a budget doesn’t mean eliminating all of your fun, either. Get rid of the stuff you don’t use and keep what makes you happy! Do shop your auto insurance around for a better rate. Do call your phone company and reduce your bill. Don’t quit your bowling league if bowling makes you happy.

Not sure where to start with your budget? No problem. Use our free budget builder to make it easy.


10. Wait Until Full Retirement Age To Take Social Security

There is all kinds of information out there about what to do about your social security. Let me boil it all down to one simple point for you: you don’t have to take it at 62! When we build a financial plan for a client, we use a tool that calculates all options for optimizing social security. And no matter how many times we do it and how many ways we look at it, one thing becomes clear every time: it’s usually best to wait at least until your full retirement age (66-67) to take social security.

There is also plenty of evidence to support waiting until age 70 too as the 32% increase in benefit can prove worth the wait. These decisions are typically based around your health at age 62 when deciding to collect or to continue to defer. It’s ultimately your decision, and we suggest weighing your options before committing to collecting the 25% reduced benefit at age 62. *Note if your full retirement age is 67, collection social security at age 62 is 30% decrease in benefits. Long story short… it pays to be patient.


11. Use Your 401k Efficiently

Max it out. Diversify your investments. You could hire a pro (like us!) if you don’t love following the markets.

Maybe your 401(k) program allows you to buy common stock shares or has an ESOP programs. These can be hard to understand at times and also have significant tax implications. NUA? Ordinary rates vs. capital gains rate? What?

Make sure you are being tax efficient with your 401(k) when it comes to planning for retirement and managing your tax bill when you retire.

Plus, hiring a pro means you’ll have more time for bowling.


12. Have A Plan

You didn’t think this was going to end without one more reminder, did you? If you’re not sure where to start with your financial plan, that’s OK: we can help.

Plus, if you’re confused about any of the information above, then setting up a plan with a CERTIFIED FINANCIAL PLANNER™ (like our very own Aileen Danley, CFP®) is the easiest way to walk through all of it.



Schedule a free consultation to talk through your finances and take the first step toward building a confident retirement.

It’s Your Stream, Your Money

As many have come to learn, taxes can be the most complicated part of being a full time content creator, streamer on Twitch or professional gamer. With some people being considered contractors or employees of a team, or both, it can be difficult to navigate your tax liability and learn how to reduce it.

However, there are solutions available. The biggest solution for those receiving a majority of their income via 1099 is the Solo 401(k) option, or “Solo(k)”. The Solo(k) is essentially a 401(k) plan but for a single person, and potentially a spouse, giving them the ability to defer their taxes and profit share themselves to help reduce tax liability come April.

So what can the Solo 401(k) do for a streamer or pro player?

solo projection
Table provided by Robert McConchie, CPA/PFS®

This example shows a streamer/player earning $225,000 in 1099 income, assumes $30,000 in business expenses across the year, a standard deduction (single person, 2016), and standard exemption (single person, 2016). Additionally, California state tax rate was used in conjunction with the Federal tax, and you can see the savings between utilizing and not utilizing the Solo 401(k), a $20,000 savings to be exact.

The savings comes from the $18,000 personal deferral then a profit share from the business of $35,000 for a max total deferral of $53,000 income within the year. Establishing a Solo 401(k) account is beneficial on multiple fronts; it allows you to set money aside for your retirement date, reduces your tax liability today, and can even be borrowed against should you find yourself in a pinch.

Now, for some streamers who are married, you have the ability to put your spouse on to your business’ payroll. How can that impact your tax savings come year end? Here’s a conservative estimate below.

solo projection spouse
Table provided by Robert McConchie, CPA/PFS®

Using the same amount of income, we can see that tax savings can also be found by correctly setting up your business to include your spouse on payroll, a 401(k) contribution for them and take advantage of additional tax savings.

Opening a Solo 401(k) is one thing you can do, but you can see the immediate impact it can make for full time content creators.

The Solo 401(k) is one of many things that every content creator should do to help minimize their tax liability into the future. Don’t wait to open one. In order to receive the tax benefit, the account must be opened within the calendar year.

Contact us today to set up a free consultation and learn what you can do to maximize your tax savings for 2016 and into 2017.


Joe Occhipinti



The contents of this article are not meant to be personal or actionable tax advice. Please consult a tax professional or your personal advisor before making any decisions. IRS & DOL guidelines must be carefully considered before choosing the retirement plan or tax advantaged savings vehicle that is right for you. The illustrations above are of hypothetical scenarios and are meant strictly for informational purposes.

Joe Occhipinti is an Investment Advisor Representative of Warren Street Wealth Advisors, a Registered Investment Advisor. The information posted here represents his opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional.  Nothing in this commentary is a solicitation to buy, or sell, any securities, or an attempt to furnish personal investment advice. We may hold securities referenced in the blog and due to the static nature of content, those securities held may change over time and trades may be contrary to outdated posts.