Case Studies

Real-life case studies show examples of the financial planning and wealth management process and how others are making their financial dreams come true.

Chris Hodge Case Study

Case Study: Chris Hodges

Maintaining Full Value of Securities’ Net Unrealized Appreciation

At 55 years of age, Chris Hodges’ employer, MNA Corporation, has offered her an early retirement. Chris has accumulated $4 million in her company’s profit sharing plan, including $3 million in MNA stock. With 75 percent of the plan concentrated in MNA stock and a basis of $250,000, Chris wants to diversify her portfolio but knows that most withdrawals from a profit sharing plan are 100 percent taxable as ordinary income.

Since she is 55 and recently stopped working, Chris’s financial advisor lets her in on a little-known tax advantage. Chris can withdraw all of the MNA stock from the plan and pay income tax on only the plan’s basis in the stock. The difference between the plan’s basis in the stock and the fair market value of the stock is known as net unrealized appreciation (NUA) or Section 402(e) securities. NUA is taxed at capital gain tax rates, which are lower than ordinary income tax rates.

Michael and Katelyn Connor Case Study

Case Study: Michael and Katelyn Connor

Extra Deductions and Involving Heirs

Michael and Katelyn Connor’s adjusted gross income is projected to be $200,000. With a total net worth of $2 million, including qualified retirement accounts and other investments, the couple will be faced with a $43,000 income tax bill this year.

The Connors’ accountant recommends creating a Donor-Advised Fund (DAF) for charitable giving. By transferring $50,000 worth of appreciated securities to their DAF, Michael and Katelyn avoid the capital gain on the assets and can deduct the gift as a charitable deduction against their adjusted gross income.

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