NUA “Exit” Strategy for Publix Stock

One of the main benefits at Publix is access to Publix stock and many employees or associates amass large amounts of stock through long careers at Publix. While this has literally and figuratively “paid dividends” over the years, it’s often important to diversify assets in retirement. When working you may be able to take on the risk of a concentrated position of stock, but often in retirement, it is better to diversify your assets away from such high levels of concentration. One such way of doing so through a tax-advantaged way is a “Net Unrealized Appreciation ” Transaction.

This transaction is listed in both the PROFIT Plan SPD and the SMART Plan SPD under the section “Tax Effects” called “Special tax rule for certain distributions of Publix stock”. This special rule allows you to withdraw your Publix stock out of your 401(k) and/or your ESOP and place it in a brokerage account while only paying income tax on your cost basis! Then you would only pay capital gains tax on sales of stock! That could be a huge tax savings for a retiree who is taking withdrawals from a brokerage account or a retiree taking money from an IRA. It also can open the door for different planning opportunities around healthcare and taxes.

It’s difficult to really grasp the magnitude of the savings here without an example, so let’s take a look at one. Let’s imagine someone who starts at 25 years old with Publix and is earning a salary of $50,000 a year. They will work for Publix for 30 years until they retire at age 55. Along the way they earn a 3% raise every year, they save 10% in their 401(k), their investments and Publix stock earns 8% a year, the annual ESOP contribution remains at 8% of compensation, and they invest 25% of their 401(k) each into Publix stock. At the end of 30 years, the annual salary would top out at $117,828, a 401(k) could be worth $763,539, and the ESOP would be worth $559,617. If this associate simply rolled over all the assets into an IRA and withdrew 4.5% annually to live on, that would generate about $12,000 in taxes in Year 1, assuming a 20% income tax rate and an 8% continued market return. If this continued for 30 years, the assets would continue to grow and so would the tax bill. Taxes paid over 30 years would total to almost $580,000. In contrast, if the associate conducted an NUA on his or her Publix stock, the taxes over 30 years would come out to only about $420,000, assuming 15% tax rate on capital gains and 20% on income. That is a massive tax savings of about $160,000.

It must be said in full transparency that this is an illustration of a hypothetical situation for someone with several variables. Everyone’s situation is different and this calculation and estimate can vary from person to person. In some cases it may be favorable and others it may not be, but it is a calculation that should be done for anyone considering retiring from Publix after a long career or who holds a considerable amount of Publix stock. If you are interested in seeing how this could potentially work for you, contact us at CandorPath Financial for your review.