Fresh out of college and filled with idealism, I served in the early 1970s as a Peace Corps volunteer in a small village in Brazil’s Amazon. My role was to work with a farmer-owned production cooperative, trying to get the co-op’s financial books in order.

Our goal was for the co-op to qualify to borrow money and then lend it to the local farmer-members. This would free the farmers from having to negotiate early cash advances from unscrupulous middlemen. These local business people would then reduce the loan debt at harvest by purchasing the farmers’ production, but at below-market prices.

With such a system, many farmers remained indebted most of their lives, bound to deal year after year with the same “comerciante” (merchant or trader).

At one meeting with the co-op membership, I encouraged them to fight for independence from this historical practice that kept them tied to the same middlemen.

I told them that many people lead lives like someone in a canoe that simply allows the current to take them wherever the current goes.

Instead, in my rudimentary Portuguese, I insisted they should pick up their paddles and go against the current. They should head toward a better life and take charge of their destiny. In short, they ought to free themselves through the co-op to sell their produce on the open market.

Between the elegant but somewhat abstract analogy and my poor, heavily-accented Portuguese, I’m not sure the message got through.

Many people lead lives like someone in a canoe that simply allows the current to take him where the current goes.

But that strong belief that people should take charge of their lives remained with me. It finds expression today in the work we do. We help clients explore what their resources might allow them to do. We assist clients in taking advantage of smart investing techniques. We attempt to avoid financial mistakes caused by ignorance or bad advice.

Employees often sign up for the ExxonMobil Savings Plan (EMSP) because a supervisor or a more tenured colleague tells them it’s a good thing to do. Often, employees continue to contribute because almost everyone else in the company does. And it’s hard to argue that you shouldn’t be saving for retirement.

But many participants continue without thinking through a Savings Plan goal or strategy. They don’t make a thoughtful decision on how much they’re contributing, what they’re investing in, and whether they’re using the right accounts.

As I encouraged the Amazon farmers to think through where they wanted to go, so, too, participants in the EMSP should consider what they want their EMSP account to do when they finally take a distribution at retirement. To help the process, and illustrate the point, we have four questions to consider.

Q1. Do you anticipate terminating employment before you reach age 59-1/2?

Under current law, with few exceptions, withdrawing funds from an IRA before you reach 59-1/2 triggers ordinary income tax plus a 10% penalty. No one likes to pay a penalty. If you think you might be retiring earlier than 59-1/2, you should consider where you’ll get money to live on. (Most of your EMSP and your pension–if you take a lump sum–will be in an IRA. As mentioned, you’ll pay a penalty to access those funds before 59-1/2.)

If this is your case, you may have non-tax qualified benefits from ExxonMobil to live on. These might include the Additional Payments Plan or Supplemental Pension or Supplemental Savings Plan benefits or restricted stock that will vest during those early retirement years.

If not, consider using the Net Unrealized Appreciation (NUA) strategy by investing in and holding low-cost ExxonMobil stock. This should include making after-tax contributions to reduce the tax burden upon distribution. You may also consider using some of your savings to invest outside of the EMSP to generate a tax-paid portfolio you can use for living expenses. Or you may take partial distributions from the EMSP before 59-1/2, pay taxes but avoid the penalty.

Q2. Will your marginal tax rate be higher in retirement than what you’re facing today?

Okay—that’s an unfair question. No one can predict what Congress will do from year to year, much less by the time you retire.

Just recognize that we’re at near historical lows today for marginal tax rates on ordinary income. Those rates are scheduled to rise in 2026. We have an Administration in place today that believes in increasing government spending. Draw your own conclusions.

But we encourage young people, especially, to invest in Roth IRA and Roth 401(k) accounts. The tax benefits today from annually shielding up to $22,500 (or $30,000 if you’re 50 or older) may not be worth exposing those dollars and their appreciation to higher tax rates when you finally retire and begin to draw down your IRA.

We’re at near historical lows for marginal tax rates.

If you think at least some of your money should grow tax-free and be accessible to you on a tax-free basis, you may want to contribute to the Roth 401(k) account instead of the Before-Tax account. Making additional after-tax contributions can also help fund a Roth IRA when you take distribution of your account at retirement. And you might consider opening a Roth IRA outside of the EMSP by using the back-door Roth conversion strategy to jump-start the five-year clock you need to access Roth IRA earnings tax-free.

Q3. If you’re holding low-cost ExxonMobil stock and thinking about the NUA strategy, do you know why?

We’ve written elsewhere about the advantages (and limitations) of using the Net Unrealized Appreciation strategy for taking low-cost ExxonMobil stock out of the EMSP at separation from service or retirement.

You should have a reason other than loyalty for holding XOM stock.

You might use NUA stock for living expenses before 59-1/2, for charitable donations, to access money by paying capital gains tax rather than ordinary income tax, or because you believe it’s a good long-term investment. Whatever the case, you should have a reason other than expressing your loyalty to ExxonMobil for holding XOM stock.

And if you want to hold on to XOM stock, make after-tax contributions to reduce taxes on the cost basis of the stock when you pull it into a brokerage account. You can do that by contributing on an after-tax basis, by contributing more than the $22.5k limit to the Before-Tax or Roth 401(k) account, or by making a special after-tax contribution toward the end of the year.

[ Read Next: How Much ExxonMobil NUA Stock is Too Much? ]

Q4. What kind of legacy do you want to leave to your children?

In my experience as an advisor, I’ve seen all types. Some clients want to leave a large financial legacy to their children and grandchildren. At the other extreme, some clients are happy to leave the undertaker with an unpaid bill, figuring they’ve given their kids enough while they’re alive.

If you lean towards the first camp, you should realize that the value of IRAs as an asset to leave to your children has diminished over time.

With the passage of the SECURE Act in late 2019, non-spousal beneficiaries (like your children) must take all the funds out of the IRA by the end of the tenth year following the year of your death. Suppose you and your spouse both die in early 2035. Your kids (as the beneficiaries) will have to take complete distribution of their inherited IRA no later than by the end of 2045. That could be when they’re in their highest earning years, and taking IRA money pushes them into a higher tax bracket. They’ll be grateful, I’m sure, but the tax bill may lessen that gratitude a bit.

There’s also no “step-up” on the tax basis of the assets in an IRA as there are currently for assets in a brokerage account. This means that they’ll pay ordinary income tax on every dollar coming out of their inherited IRA. There’s no favorable capital gains tax, which might have been applicable had you left them a brokerage account.

Finally, your IRA balance at your death will be included in your estate, and could be subject to estate taxes as well.

If these issues concern you, you might consider the level of your contributions to the EMSP, whether you really want to invest in the Before-Tax account or you might prefer the Roth 401(k) account. You might also want to consider using life insurance benefits as a tax-free bequest at your death for your children or grandchildren.

Conclusion

Each investor’s circumstances and objectives are unique. We’re not suggesting that there’s a single best way to invest in your EMSP. We are making the argument that you have a strategy underlying how you choose to invest your hard-earned dollars and in what amount. Don’t let inertia carry you like the Amazon River might carry a canoe to places you don’t want to go.

And if you’re within about five years from retirement and anticipate assets in excess of $1M to support you during that next chapter, we’d be glad to help you develop a strategy. Let’s talk!

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