Resigning from an executive position is far from simple. As a C-level executive, your role is multifaceted, and your financial matters are even more intricate. From custom compensation schemes to stock options and various high-value assets, you must consider how your income will pivot when you give up your position.
At Tencap, we understand your challenges as a high-net-worth individual and provide solutions for a strategic transition. Read below for more about navigating crucial financial aspects when resigning from an executive role.
What Are the Tax and Financial Implications of Resigning from an Executive Position?
Resigning from an executive position involves more than just transitioning job roles—it triggers a series of tax and financial considerations unique to high-level executives. This section explores what those implications are and how to secure your financial position moving forward.
Severance packages and benefits
Severance packages can provide a financial cushion when you leave an executive role. However, they are also fully taxable. If your severance pushes your annual income to a higher tax bracket, you could face a substantial tax bill you’re unprepared for.
Retirement accounts and pensions
After retiring, you’re left with 401(k) funds. You can leave them there, carry them over to a new employer’s plan, or move them to your retirement account (IRA). Each option has different tax implications.
For example, when you roll over your funds to an IRA directly, you avoid immediate taxes, whereas cashing out could result in an additional 10% tax if you’re under 59½ years old.
Stock options
Stock options are a valuable component of executive compensation that offers lucrative gains if the company’s stock price increases. Similarly, you could face significant tax implications from these assets when you leave your position.
If you sell the stock after a certain period, you might qualify for long-term capital gains tax lower than the ordinary income tax rate. However, immediate exercise and sale could result in higher taxes because the gains realized from selling the stock are typically taxed at ordinary income tax rates.
Health insurance
Under the Consolidated Omnibus Budget Reconciliation Act (COBRA), you can keep your employer-sponsored health insurance for up to 18 months post-resignation, but you must pay the total premium. Alternatively, you might consider purchasing a plan through the Health Insurance Marketplace®, which may offer subsidies based on your income.
Changes in tax brackets
A significant change in your income, such as receiving a severance package or cashing out stock options, can place you in a higher tax bracket, impacting how much you owe for the year. Try planning the timing of these income events to help manage your tax bracket and reduce your overall liability.
Financial planning
Assessing your finances includes budgeting for daily expenses, re-evaluating investment strategies, and planning for potential periods of lower income. Consider working with a financial planner to ensure your finances remain on track during this transition.
Employment agreements and non-compete clauses
When resigning, you must carefully review your employment agreement and non-compete clauses. These can impact your ability to work in your industry and influence your financial planning. Non-compete clauses can also limit your job opportunities, affecting your income and financial stability.
How to Put Yourself in a Better Financial Position after Resigning from an Executive Position
Sorting your financial trajectory after resigning from an executive position is essential to securing your future. This section explores strategic steps to enhance your financial well-being post-resignation.
1. Evaluate your financial situation
Your resignation will likely affect your savings, investments, retirement accounts, and liabilities. When you understand your financial health well, you can better gauge how to spend your money, preserve it, and earn more.
2. Create a post-resignation budget
Your post-resignation budget should reflect your new financial reality to help you manage cash flow effectively during this transitional phase. Factor in changes in income, expenses, and potential one-time costs like legal fees or career transition expenses.
3. Manage your cash flow effectively
It should go without saying that careful management of your finances can help you stay financially stable. When you’re transitioning from an executive job, it’s essential to keep enough liquidity through assets that you can quickly turn into cash. Then, you can cover your regular expenses and handle any unexpected costs.
4. Hire a lawyer
Resignations from executive roles may involve complex legal considerations, such as severance agreements or equity holdings. Get help from lawyers who specialize in corporate laws. They can guide you through contracts and protect your rights. Likewise, they can help manage your exit smoothly and safeguard what’s yours as you advance in your career.
5. Consult with a certified financial planner
The Certified Financial Planner®(CFPs) at Tencap are experienced in executive transitions and can provide personalized strategies to optimize investments, plan for retirement, and mitigate tax implications associated with your resignation.
For tailored financial advisory services, Greg Black, president and founder of Tencap, offers expertise in executive transitions and wealth management. You can benefit from a comprehensive approach that ensures your financial well-being post-resignation.
Learn and Grow: Professional Development after Resignation
The journey of resigning from an executive role requires you to make important decisions for your future. From managing severance packages to understanding tax implications, every step should steer you toward the future you want.
At Tencap, we guide high-net-worth individuals like you through these transitions with personalized strategies to fully protect your financial interests. Our expertise in executive transitions and wealth management ensures you’re well-prepared for life after an executive position.
Explore our advisory services and see why our wealth coaching makes a difference in achieving your financial goals. Want to learn more? Visit Tencap Wealth Coaching today.
The information contained herein should in no way be construed or interpreted as a solicitation to sell or offer to sell advisory services to any residents of any State other than the State of Utah or where otherwise legally permitted. All content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Nor is it intended to be a projection of current or future performance or indication of future results. Moreover, this material has been derived from sources believed to be reliable but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed. Purchases are subject to suitability. This requires a review of an investor’s objective, risk tolerance, and time horizons. Investing always involves risk and possible loss of capital.
Nick Carrigan
Nick trains and develops families in creating, maintaining, and growing wealth. This includes educating clients on the science and academics of investing, comprehensive financial planning, and ongoing coaching to ensure discipline for a lifetime. Nick has seen this create incredible levels of freedom, fulfillment, and love for the families he works with.
