By Jake Withnell, CFP®
Have you climbed the ranks at Nike and are now an E-Band or high-ranking S-Band? If so, congratulations! You’re leading a successful career, but it’s not without its complexities. In addition to regular W-2 income, you have a laundry list of executive compensation benefits to sort through, including:
- Performance-Based Annual Incentive Plan, also called Performance Sharing Plan (PSP)
- 3-Part Long-Term Incentive Compensation Plan:
- Long-Term Incentive Plan (LTIP)
- Stock options
- Restricted stock awards
At JGP Wealth Management, we’ve created a step-by-step checklist on how to optimize these Nike executive compensation benefits. (We deploy this checklist for all of our Nike clients after we’ve established an understanding of their current financial situation and goals, so you can rest assured that it’s tried and true.) These steps are laid out in order of importance, so following them in this sequence will help you get the most out of your benefits.
The first three steps are all about executing on the “low-hanging fruit” in your Nike benefits package. It’s always surprising how many executives fail to properly manage these basic benefits (even though they’re quite easy to maximize).
Step 1: Max Out Your Nike 401(k)
401(k) contributions are automatically taken out of your paychecks each month. For 2021, you can contribute up to $19,500 a year, plus an additional $6,500 if you’re at least age 50.
We recommend contributing at least enough to get the full 5% company match (that’s 100% free money), plus any additional amounts up to the contribution limit.
There are two different types of 401(k)s you can open through Nike:
- Traditional 401(k): Allows you to defer taxes and investment growth to retirement.
- Roth 401(k): You pay taxes now, then take advantage of tax-free income and growth when you start taking withdrawals.
Fidelity, Nike’s custodian, just rolled out new retirement date funds in February of 2021. Discuss the impact of these new funds with your financial advisor and make sure your retirement date fund matches your risk tolerance and retirement goals.
Step 2: Do A Nike 401(k) After-Tax Roth Conversion
If your income is too high to qualify for a Roth IRA account, you can still take advantage of the tax perks through an IRS-sanctioned Roth conversion. It works like this:
- Make after-tax contributions to your Nike 401(k) throughout the year. (The typical allocation is 3% of your salary to an after-tax 401(k) bucket, up to a maximum deferral of $8,400 per year.)
- At the end of the year, complete an in-kind transfer to your Roth 401(k) bucket.
- Enjoy tax-free growth and tax-free withdrawals at retirement.
Step 3: Maximize Nike ESPP Benefits
Nike offers an internal 15% purchase discount to executives. Take advantage of this discount by fully funding the benefit and splitting it between two purchasing dates. (The current maximum is $25,000.)
ESPP benefits are a great way to build wealth, but there are two things you’ll want to be aware of:
- There are tax implications upon the sale of ESPP benefits, and
- There’s a difference between qualified dispositions and non-qualified dispositions.
Coordinate with your CPA and financial advisor to understand the differences and make sure you’re choosing the best liquidation method for you.
Once we’ve made sure these first three benefits are being executed well, then it’s time to optimize these last three benefits based on your long-term goals and tax situation.
Step 4: Create A Coordinated And Consistent Restricted Stock Award And Stock Option Liquidation Plan
As your concentration in Nike stock through ESPP, stock options, and restricted stock increases, it is imperative to create a plan to lower your risk exposure.
Before executing stock options or selling restricted stock, be aware of your:
- Risk tolerance
- Liquidity needs
- Timeline to retirement
- Current age
- Concentration and current exposure to NKE
- Tax implications
Step 5: Decide If You Should Fund Deferred Compensation
Nike’s Deferred Compensation Program is a great way to build tax-deferred savings outside of your traditional 401(k). You can invest money for growth during deferral years, then pay taxes when you start taking withdrawals.
Employees who make more than the Annual Compensation Limit of $290,000 in 2021, also qualify for profit-sharing catch-up contributions into the deferred compensation plan.
Still, deferred compensation doesn’t make sense for everyone. It’s important to determine the after-tax savings of your current salary and PSP bonus before deciding to defer compensation to later years.
For example, you’ll need to figure out how much income you should defer to later years, what investment allocation you should choose to invest in your plan, and which distribution plan matches your goals.
Step 6: Utilize The Nike Donation-Match Program
The Nike Foundation has an excellent donation-match program (facilitated through the “Give Your Best” platform) where it will match donations to schools and organizations—up to $10,000.
Depending on your charitable giving goals, it may make sense to make donations through a personal donor-advised fund (DAF). (There are new administrating rules around DAFs, so be sure to contact JGP Wealth or your current advisor for details before you open one.)
Optimize Your Benefits Today!
At JGP Wealth Management, we’ve been helping Nike executives maximize their employee benefits for decades. During that time, we’ve come to realize that while most executives are aware of the benefits available to them, but they haven’t put a thoughtful plan in place to maximize them.
If you’d like help implementing any of the strategies discussed today, or if you have specific questions about your compensation package, schedule a free Q&A call today. We’d love to hear more about your situation and offer advice on how you can optimize your Nike benefits and prepare for a secure retirement. You can reach out to me directly at 503-446-6450, email email@example.com, or schedule an introductory phone call online to get started.
Jake Withnell is a financial advisor at JGP Wealth Management, an independent, fee-based financial advisory firm in Portland, Oregon. Jake is known for going the extra mile for his clients and for his passion for working tirelessly to help his clients find solutions to their financial concerns so they can confidently live out the life they want. He prioritizes listening and understanding as the foundation of his relationships with his clients, and his highest hope is that they can spend more of their time and energy on their passions knowing he is watching over their financial future. Jake specializes in serving business owners, Nike executives, and retirees, and plays a key role in JGP’s portfolio management process, building and analyzing financial models, and conducting client cash flow analyses.
Jake graduated from Eastern Washington University with a bachelor’s degree in professional accounting and finance. He is a Certified Public Accountant (CPA) and a CERTIFIED FINANCIAL PLANNER® (CFP®) professional. Jake’s claim to fame is his time playing tight end for the Eastern Washington University Eagles, all while earning four-time Big Sky Conference First Team All-Academic honors! Jake values giving back to his community and does this by volunteering with the Children’s Cancer Association, Family Building Blocks, and New Avenues for Youth. In his free time, Jake takes advantage of the many outdoor activities the Northwest has to offer, such as trail running, mountain biking, and hiking. He loves traveling and spending long weekends at his family beach house in Seaside, OR. To learn more about Jake, connect with him on LinkedIn.