As a Lockheed Martin employee who participates in the 401(k) plan, not only can you receive lucrative company-matching contributions, you also have the ability to own Lockheed stock (NY Stock Exchange Ticker: LMT). This is a great incentive to help maximize the company’s performance, but it does pose a potential investment concern. If a sizable portion of your 401(k) allocation is in LMT, this becomes what is called a concentrated position. A concentrated position can be risky because it is the equivalent of putting all your eggs in one basket. A useful way to mitigate this risk is through the Net Unrealized Appreciation strategy.

What in the world is Net Unrealized Appreciation (NUA)? It is the amount between your cost basis (purchase price) and the current market value of the Lockheed stock. With regards to NUA, the two benefits of implementing the strategy are to reduce investment risk of the concentrated position and to save on taxes. Ordinary income taxes are based on the marginal tax brackets; however, capital gains tax rates are lower than the marginal rates. A simplified illustration will help visualize the effects:

NUA Calculation

Current price $400
Cost basis (ordinary income tax rate) $210
NUA (long-term capital gains tax rate) $180

Taxes of NUA Strategy

Ordinary income ($210 x 22%) $46.20
Long-term capital gains ($180 x 15%) $27
Total taxes $73.20

Important things to know: 

  • The NUA strategy can only be done for a lump-sum distribution from the 401(k)
  • Proceeds must go into a non-retirement brokerage account (not into an IRA)
  • Utilizing this strategy may not save tax dollars
  • Triggering event must occur:
  • Death
  • Disability
  • Separation from service
  • Reach age 59½  

The Net Unrealized Appreciation strategy is typically best suited for company stock that has had significant appreciation (low cost initially, high value now). While tax savings and diversifying out of a concentrated position are both positives, because of the other factors involved, it is prudent to speak with one of our Lockheed Martin Retirement Specialists to determine if this may be appropriate for your unique circumstance. Call us today at 817-210-3444 or email info@strittmatterwealth.com to schedule a Complementary Consultation.  

For more tips like these, click here to sign up for our weekly email blog newsletter. If you would like to get better educated on Lockheed retirement strategies, click here to download our Free Report titled Retire with Confidence: The Top 4 Things You Can Do Now to Maximize your Lockheed Retirement. And, if you want to have face time with a Lockheed Retirement Specialist², you can click here to schedule an appointmentclick here to sign up for our Lockheed Retirement Workshop or click here to just give us a call (817) 210-3444.

Be sure and check back next week for more incredibly valuable information. Cheers!

Disclosures*

Financial Planning and Investment Advisory offered by SWMG, LLC a Registered Investment Advisor.

Lockheed Martin Retirement Specialist is not an official title or professional designation nor is it conferred by Lockheed Martin on any individual or company.

Our Complementary consultation and free report are for informational purposes only and provided free without any obligation to utilize or retain our investment advisory services.

SMWG, LLC is not affiliated with or endorsed by Lockheed Martin Corporation. Our expertise comes from working with LMT employees for several years and helping them to retire with confidence.

Investing involves the risk of loss, including loss of principal. Past performance does not guarantee future results. Investment products are not FDIC insured, have no bank guarantee, and may gain or lose value. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable for a client’s investment portfolio.

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