Your Client Gets a Buyout Offer From Their Company. Should They Take It?
How Does the Buyout Fit With Your Client’s Situation?
This is the most critical question. No matter how favorable or unfavorable the buyout is, what’s important is how it will affect your client.
If your client is on the cusp of retirement, then the buyout package may allow them to leave a bit sooner if they are so inclined. It’s not uncommon for people to launch “encore careers” in retirement or semi-retirement, and enhanced benefits from the buyout may be tailor-made for your client if this is of interest to them.
For clients who are younger or who are planning on working for a number of years, the buyout can be a bridge to their next opportunity. This might be especially true if they have maintained their network of professional contacts and work in a function or industry that makes them marketable to other employers. If the buyout offers job search assistance and a generous payout, this can be a great opportunity for them.
If your client is in an area like engineering, technology, law or finance, there might be opportunities for them in consulting, including starting their own practice.
Taxes, Retirement Plans and Stock Options
Key areas where your client will be looking to you for advice include their 401(k) or other retirement accounts, any equity compensation and evaluating the tax impact of the payments via the buyout.
As far as their 401(k) or similar plan, determine whether they are vested in any employer contributions. From there, evaluate whether rolling the account over to an IRA or leaving it in the plan makes the most sense. In the latter case, this depends on the quality of the investments in the plan and how the employer treats the accounts of former employees. If your client finds a new position rather quickly, rolling their old 401(k) into a new employer’s plan may be beneficial.
With a pension, there may be a lump-sum option available or accelerated annuity benefits. You will want to run the numbers both ways if applicable to help advise your client.
In the case of stock options or other stock-based compensation, be sure to understand all vesting and exercise rules. From there, you will be in a position to help your client optimize these benefits.
Depending upon how their cash compensation under the buyout will be paid, there could be significant tax implications. Some companies might pay any severance as a lump sum; this could cause a jump in income for your client in the current year. If this is the case, there might be some planning steps to take to help offset the added income or otherwise take advantage of it.
The Bottom Line
If your client is offered a buyout by their employer, they will depend on you to analyze the financial ramifications of the package and to advise them. Beyond this, you can provide a useful sounding board for your client as they decide whether to take the buyout or try to stick with their employer.
Speaking as someone with business experience and, more importantly, as a trusted advisor and confidant, I can say that you can play a key role in helping clients evaluate both the financial and nonfinancial aspects of whether to take the buyout and move on.
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