You’re an ExxonMobil employee. You’ve worked a long career. Now, because either you’re finally ready, or you’ve been encouraged to retire, it’s decision time. One decision you face: what to do with all that ExxonMobil stock that’s accumulated in your ExxonMobil Savings Plan over the years?

For lots of ExxonMobil employees, a significant portion of your anticipated retirement wealth is in your ExxonMobil Savings Plan (EMSP). The EMSP is ExxonMobil’s 401(k) / profit-sharing plan. And for many, a large chunk of that wealth is invested in ExxonMobil common stock (XOM).

But as most shareholders are happily aware, ExxonMobil stock is at near-record levels. For many, selling stock now presents a dilemma. If you’re a retirement-eligible employee and you don’t want to sell shares of XOM at these high prices, hoping the upward trend continues, what are you to do? If you plan to leave ExxonMobil and you’ve got XOM stock in your EMSP, what’s the right strategy?

ExxonMobil stock is near historic all-time highs.

Here are four strategies to consider.

1) Retain Your EMSP Account

You don’t have to take a distribution of your EMSP account when you retire. Under current plan rules, you can generally keep your account as a retiree. This enables you to avoid making any new decision about XOM. You can continue to collect dividends and hope the price continues to go up.

A plan well-designed to accumulate assets is not necessarily most appropriate when it comes time to “de-cumulate.”

Advantages of this approach include extremely low management fees on your investments. You’re familiar with the passive, index fund investment options. You have the ability to withdraw cash once or twice a year if you need the money.

But your investment options are limited and somewhat inflexible. You have no equity exposure to emerging markets like China, India, and Latin America, a significant part of the investment universe.

The Bond Units fund is subject to price declines as interest rates rise, given its concentration in longer-term bonds and U.S. Treasury bonds. You’re restricted on trading frequency.

In short, a plan well-designed to help employees accumulate assets is not necessarily the most appropriate when it comes time to “de-cumulate.”

2) Roll Over Your EMSP Account, Including XOM, Into an IRA and Sell Shares Later

It’s possible to roll over shares of XOM in kind (as shares of stock) into an IRA. The Plan would send a check for the cash in your account from liquidating your non-XOM investments to your IRA custodian. Your shares of XOM will be placed into an account with Computershare (ExxonMobil stock transfer agent). You’ll likely need to request a transfer of those shares to your IRA, but they can move into your IRA without incurring taxes.

Once in the IRA, you can decide whether and when to sell them, collect dividends inside the IRA on retained shares, and diversify your assets. A disadvantage of rolling XOM stock into an IRA is that you forego the opportunity to apply Net Unrealized Appreciation (NUA) tax treatment to those shares. But, as discussed in a prior blog, not everyone needs to take advantage of NUA.

3) Transfer XOM Shares to a Brokerage Account

Alternatively, transfer your XOM shares to an investment or brokerage account. If you have sufficient after-tax contributions in your EMSP account, you can “attribute” those dollars to the cost of the shares, and you’ll not have to pay taxes on the cost basis of the shares. Otherwise, the IRS considers the distribution to be taxable, and they’ll tax you on the cost basis of the shares.

But by putting the shares in a brokerage account, you can determine when you want to sell them, and you’ll only pay capital gains taxes on the appreciation over the cost of the shares. That’s likely a lower tax rate than what you’d pay if you raised the same amount of cash by taking a distribution from your IRA and paid tax on ordinary income.

And the NUA in a subsequent sale of stock is exempt from the Net Investment Income Tax (NIIT), a surcharge that afflicts higher income taxpayers.  Additionally, appreciated shares inside a brokerage account are an excellent source for charitable donations.

Why Are These Tough Choices?

The human mind is not designed for investing. There’s an entire field called behavioral finance that focuses on the investing mistakes we often make. We use short-cuts to make decisions, short-cuts that are often wrong. We focus on the past and what we paid for an investment, as though a paper loss really matters more than future returns. We often buy what’s familiar, rather than what’s likely to provide better returns.

The human mind is not designed for investing.

Successful investing is forward-looking. Invest in assets that are most likely to give you the best return going forward, recognizing your risk tolerance and time horizon. Diversify among many asset classes because, quite frankly, we don’t know what the future holds.

Note that this is neither a recommendation to hold on to ExxonMobil stock nor to sell it. But the fourth alternative is to take the profits inside your EMSP and move on.

4) Sell Your XOM Now, Roll Over the Cash, and Invest in Other Assets Inside an IRA

Yes, it can be a mixed feeling—incurring gains but forgoing possible future appreciation. But buckle up, Bubba, and acknowledge that XOM may have peaked or may not outpace other investments in the future, or that you simply have too much XOM. Sell the stock inside your EMSP and do a rollover of cash to an IRA. This is the simplest approach, but it takes a lot of discipline to put aside years of loyalty to ExxonMobil, good stock performance over the last few years, and cash out at current price levels.

Rolling over your taxable assets from the EMSP to an IRA permits you to diversify your investments, take distributions when you like, and defer mandatory required minimum distributions (RMDs) until age 73 or 75 (depending on your year of birth). Your assets continue to grow tax deferred. You can also consider doing Roth conversions from your IRA in those years between retirement and taking RMDs, when your tax rate is likely lower than it will be once you begin Social Security and have to take RMDs.

Final Thoughts

It’s a tough decision, with hopes, fears, and emotions all mixed in. You have to decide what’s best for you and your family. It can be prudent to talk with an objective third party when making consequential financial decisions. Let’s talk!

Cerity Partners LLC and ExxonMobil are separate and unaffiliated entities. The information provided is for educational purposes only and should not be construed as personalized investment, tax, or legal advice. ExxonMobil may modify benefits described herein at any time. Readers should consult their own tax and investment professionals before making any decisions.

Cerity Partners LLC (“Cerity Partners”) is an SEC-registered investment adviser. Registration does not imply any level of skill or training. For information about Cerity Partners’ services, fees, and conflicts of interest, please review our Form ADV Part 2A and Form CRS at www.adviserinfo.sec.gov or request a copy from us directly.

Nothing contained herein constitutes an offer to sell or a solicitation of an offer to buy any security. Investing involves risk, including possible loss of principal. Past performance does not guarantee future results.

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