Rate Watch 2017 – May

Handling ESOP Shares & Taxes

Cary Facer
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. The 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: Cary Facer 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.

SCE Medical Benefit Breakdown

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.

12 Keys To Retiring From SCE 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 hundreds of Southern California Edison retirees navigate this crucial but confusing time. In the process, we’ve learned SCE’s retirement programs and employee benefits inside and out. So we put together a list of our top 12 keys to retiring from SCE confidently and stress-free.

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.

And if you don’t have a map, who knows where you’ll end up?

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!

Plus, if you’re confused about any of the information below, then setting up a plan with a CERTIFIED FINANCIAL PLANNER™ (like our very own Justin D. Rucci, CFP®) is the easiest way to walk through all of it in terms you’ll understand. Perhaps your next step is to contact us schedule a free consultation and talk about how you can get started.

OK, let’s move on…

3. Plan to Retire Around October

If you are grandfathered into the old SCE pension plan formula and are interested in the lump sum option then you should plan to retire around October. This will allow you to choose which interest rate you want for your grandfathered formula. You can choose whichever gives you the larger lump sum payout: the current year or the next one during this small window of time (learn more HERE).

The main takeaways are to know that you have a choice, weigh the benefits, then decide to retire on December 1st or January 1st–whichever projection pays the higher lump sum benefit.

4. 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 401k before then. So are you stuck?


This is what you do: use a 72t Distribution, the “Age 55” IRS Rule, or a combination of the two, to keep you from paying penalties. Very simply, these rules allow you to access a portion of your 401k penalty-free that can sustain you until you get to age 59 1/2.

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.

5. Take Advantage of Your Medical Subsidy

Did you know that you’re eligible for retiree medical subsidy? Call HR and ask them how much you get. 50% or 85% are the most common. This means that when you retire, Edison will pay 50-85% of your retiree medical insurance premium. This is one new cost you’ll have in retirement that you’ll want to budget for.

6. 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.

7. Plan For Your Sick Time Payout

Sick time payout can help you tremendously, especially if you’re not yet 59½. You can run a pension projection online and it will include a calculation of your accrued sick time payout value. That gives you more clarity about how much money you’ll start with when you retire.

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 all of 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, but keep what makes you happy! Do shop your auto insurance around for a better rate. Do call your phone company and cut your bill in half. But don’t quit your bowling league if you love to bowl and 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 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.

11. Use Your 401k Efficiently

Max it out. Diversify your investments. Hire a pro (like us!) if you don’t love following the markets. Take advantage of the Tier 3 option (it’s called your “Personal Choice Retirement Account”) with Charles Schwab.

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

You can retire comfortably and confidently. Take the first step to get the help you need today.


If you have any other questions, we’d love to help. Give us a call today at 714-876-6200 or email us at info@warrenstreetwealth.com. For more helpful financial advice, sign up for our mailing list below!

What Are Catch-Up Contributions Really Worth?

What Are Catch-Up Contributions Really Worth?
What degree of difference could they make for you in retirement?
Provided by Joe Occhipinti

At a certain age, you are allowed to boost your yearly retirement account contributions. For example, you can direct an extra $1,000 per year into a Roth or traditional IRA starting in the year you turn 50.¹

Your initial reaction to that may be: “So what? What will an extra $1,000 a year in retirement savings really do for me?”

That reaction is understandable, but consider also that you can contribute an extra $6,000 a year to many workplace retirement plans starting at age 50. As you likely have both types of accounts, the opportunity to save and invest up to $7,000 a year more toward your retirement savings effort may elicit more enthusiasm.¹ ²

What could regular catch-up contributions from age 50-65 potentially do for you? They could result in an extra $1,000 a month in retirement income, according to the calculations of retirement plan giant Fidelity. To be specific, Fidelity says that an employee who contributes $24,000 instead of $18,000 annually to the typical employer-sponsored plan could see that kind of positive impact. ²

To put it another way, how would you like an extra $50,000 or $100,000 in retirement savings? Making regular catch-up contributions might help you bolster your retirement funds by that much – or more.  Plugging in some numbers provides a nice (albeit hypothetical) illustration.³

Even if you simply make $1,000 additional yearly contributions to a Roth or traditional IRA starting in the year you turn 50, those accumulated catch-ups will grow and compound to about $22,000 when you are 65 if the IRA yields just 4% annually. At an 8% annual return, you will be looking at about $30,000 extra for retirement. (Besides all this, a $1,000 catch-up contribution to a traditional IRA can also reduce your income tax bill by $1,000 for that year.)³   

If you direct $24,000 a year rather than $18,000 a year into one of the common workplace retirement plans starting at age 50, the math works out like this: you end up with about $131,000 in 15 years at a 4% annual return, and $182,000 by age 65 at an 8% annual return.³

If your financial situation allows you to max out catch-up contributions for both types of accounts, the effect may be profound indeed. Fifteen years of regular, maximum catch-up contributions to both an IRA and a workplace retirement plan would generate $153,000 by age 65 at a 4% annual yield, and $212,000 at an 8% annual yield.³

The more you earn, the greater your capacity to “catch up.” This may not be fair, but it is true.

Fidelity says its overall catch-up contribution participation rate is just 8%. The average account balance of employees 50 and older making catch-ups was $417,000, compared to $157,000 for employees who refrained. Vanguard, another major provider of employer-sponsored retirement plans, finds that 42% of workers aged 50 and older who earn more than $100,000 per year make catch-up contributions to its plans, compared with 16% of workers on the whole within that demographic.²

Even if you are hard-pressed to make or max out the catch-up each year, you may have a spouse who is able to make catch-ups. Perhaps one of you can make a full catch-up contribution when the other cannot, or perhaps you can make partial catch-ups together. In either case, you are still taking advantage of the catch-up rules.

Catch-up contributions should not be dismissed. They can be crucial if you are just starting to save for retirement in middle age or need to rebuild retirement savings at mid-life. Consider making them; they may make a significant difference for your savings effort.  




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 – nasdaq.com/article/retirement-savings-basics-sign-up-for-ira-roth-or-401k-cm627195 [11/30/15]
2 – time.com/money/4175048/401k-catch-up-contributions/ [1/11/16]
3 – marketwatch.com/story/you-can-make-a-lot-of-money-with-retirement-account-catch-up-contributions-2016-03-21 [3/21/16]


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