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.

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.

Do Women Face Greater Retirement Challenges than Men?

Do Women Face Greater Retirement Challenges Than Men?
If so, how can they plan to meet those challenges?
Provided by Joe Occhipinti

A new study has raised eyebrows about the retirement prospects of women. It comes from the National Institute on Retirement Security, a non-profit, non-partisan research organization based in Washington, D.C. Studying 2012 U.S. Census data, NRIS found that women aged 65 and older had 26% less income than their male peers. Looking at Vanguard’s 2014 fact set on its retirement plans, NRIS learned that the median retirement account balance for women was 34% less than that of men.¹

Alarming numbers? Certainly. Two other statistics in the NRIS report are even more troubling. One, a woman 65 or older is 80% more likely to be impoverished than a man of that age. Two, the incidence of poverty is three times as great for a woman as it is for a man by age 75.¹²  

Why are women so challenged to retire comfortably? You can cite a number of factors that can potentially impact a woman’s retirement prospects and retirement experience. A woman may spend less time in the workforce during her life than a man due to childrearing and caregiving needs, with a corresponding interruption in both wages and workplace retirement plan participation. A divorce can hugely alter a woman’s finances and financial outlook. As women live longer on average than men, they face slightly greater longevity risk – the risk of eventually outliving retirement savings.

There is also the gender wage gap, narrowing, but still evident. As American Association of University Women research notes, the average female worker earned 79 cents for every dollar a male worker did in 2014 (in 1974, the ratio was 59 cents to every dollar).

What can women do to respond to these financial challenges? Several steps are worth taking.  

Invest early & consistently. Women should realize that, on average, they may need more years of retirement income than men. Social Security will not provide all the money they need, and,  in the future, it may not even pay out as much as it does today. Accumulated retirement savings will need to be tapped as an income stream. So saving and investing regularly through IRAs and workplace retirement accounts is vital, the earlier the better. So is getting the employer match, if one is offered. Catch-up contributions after 50 should also be a goal.

Consider Roth IRAs & HSAs. Imagine having a source of tax-free retirement income. Imagine having a healthcare fund that allows tax-free withdrawals. A Roth IRA can potentially provide the former; a Health Savings Account, the latter. An HSA is even funded with pre-tax dollars, as opposed to a Roth IRA, which is funded with after-tax dollars – so an HSA owner can potentially get tax-deductible contributions as well as tax-free growth and tax-free withdrawals.4

IRS rules must be followed to get these tax perks, but they are not hard to abide by. A Roth IRA need be owned for only five tax years before tax-free withdrawals may be taken (the owner does need to be older than age 59½ at that time). Those who make too much money to contribute to a Roth IRA can still convert a traditional IRA to a Roth. HSAs have to be used in conjunction with high-deductible health plans, and HSA savings must be withdrawn to pay for qualified health expenses in order to be tax-exempt. One intriguing HSA detail worth remembering: after attaining age 65 or Medicare eligibility, an HSA owner can withdraw HSA funds for non-medical expenses (these types of withdrawals are characterized as taxable income). That fact has prompted some journalists to label HSAs “backdoor IRAs.”4,5

Work longer in pursuit of greater monthly Social Security benefits. Staying in the workforce even one or two years longer means one or two years less of retirement to fund, and for each year a woman refrains from filing for Social Security after age 62, her monthly Social Security benefit rises by about 8%.6

Social Security also pays the same monthly benefit to men and women at the same age – unlike the typical privately funded income contract, which may pay a woman of a certain age less than her male counterpart as the payments are calculated using gender-based actuarial tables.7  

Find a method to fund eldercare. Many women are going to outlive their spouses, perhaps by a decade or longer. Their deaths (and the deaths of their spouses) may not be sudden. While many women may not eventually need months of rehabilitation, in-home care, or hospice care, many other women will.

Today, financially aware women are planning to meet retirement challenges. They are conferring with financial advisors in recognition of those tests – and they are strategizing to take greater control over their financial futures.

Joe Occhipinti may be reached at 714.823.3328 or Joe@warrenstreetwealth.com





This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.


1 – bankrate.com/financing/retirement/retirement-women-should-worry/ [3/1/16]
2 – blackenterprise.com/small-business/women-age-65-are-becoming-poorest-americans/ [3/18/16]
3 – tinyurl.com/jq5mqhg [6/8/16]
4 – bankrate.com/finance/insurance/health-savings-account-rules-and-regulations.aspx [1/1/16]
5 – nerdwallet.com/blog/investing/know-rules-before-you-dip-into-roth-ira/ [1/29/16]
6 – fool.com/retirement/general/2016/05/29/when-do-most-americans-claim-social-security.aspx [5/29/16]
7 – investopedia.com/articles/retirement/05/071105.asp [6/16/16]


Black April: The Twitch Partner Reckoning

April 2016 may have seemed like just another month on Twitch.tv, but the volume of Twitch partners struggling with the complexity of taxes on social media was louder than ever.


People are continuing to take their hobby of streaming video games and turning it into careers, many with great success. These successful careers are creating lives for many people that they haven’t experienced before, getting paid to do what they love. With this new found success and income came an increase in payments to the outstretched hand of the tax man, Uncle Sam. While for a majority of the people who have experienced this before, their thought may be: “Seems standard.” In this case, many who were impacted the most were not prepared for the impending tax bill and did not know what steps to take to soften the blow. Successful streamers in the past got away with standard tax preparations in their first year of business, but they did not anticipate the increase in the complexity of their taxes with the increase in their annual pay. This has always been a problem for those making a significant amount of money, a relatively new situation in the Twitch world.


Obviously, some may allude to the fact that tax preparation should be common knowledge. It’s hard to disagree with that statement, but many of these young entrepreneurs look at themselves as employees taking home a paycheck instead of as small business owners looking to manage their tax burden. Streamers who grew their respective gaming communities were thrust into a new position that some were not prepared for from a financial standpoint.


What is the glaring issue here? The main issue was the lack of knowledge on the streamer front as to how to handle taxes proactively. This was a first time experience for many, and for someone working under the 1099 independent contractor banner, it can be easily forgotten that taxes are a looming liability. The even more forgotten concern is the full 15.3% payroll tax that becomes the liability of the streamer versus only paying half as a W2 employee. If taxes are not adequately addressed in the current tax year, it can create years of future problems, additional payments, and more time spent dealing with the IRS.


The silver lining to this story is the viability of the interactive media market as a career for professional players, streamers, or content creators. This growing market is a breeding ground for sponsors to find new users of their products and create lifetime customers. Each micro-community on Twitch represents a unique opportunity for streamers to leverage their audience.


With taxes continuing to be an annual problem for streamers, there are solutions. Individual firms, consultants, and even pro-bono counseling groups are being formed for the sole purpose to better educate, prepare, and potentially offer professional services to those in need. One example is the Player Resource Center being developed by esports lawyer Bryce Blum and former professional gamer Stephen “Snoopeh” Ellis to fill this exact void. The growing interactive media environment needs professional infrastructure to help it continue to thrive into the future.


Outside of being able to generate a living via streaming, the biggest financial problem that streamers face is proper consideration towards taxes at the end of the year. With many firms looking to help and resources becoming available to those in need, there is hope that these entrepreneurs will continue to increase their efficiency and make the most of their success for years to come.

Joe Occhipinti