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Author: hgerhardt Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76237  
Subject: My brother made it! Date: 7/23/1999 4:30 PM
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What kind of advice should I give my brother who has over 3 million from working for Intel and taking in all stock options. He does not want to work anymore, he is 45, single and feels he could live off of 60,000 a year quite comfortably. Where should I direct him so the "wise men" will not take his money? Yes, his money is still in Intell which I would think some diversity would be quite foolish. Hugh
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Author: tonyw44 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12508 of 76237
Subject: Re: My brother made it! Date: 7/23/1999 5:22 PM
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Yes, he should diversify, but there is a risk to that. If he cashes in his options and he doesn't do it in a way that ensures that he pays a long term capital gains rate, he could end up paying more money in taxes than he should.

Make sure he cashes in options that are older than one year first. Let's say he's got options that were issued 18 months ago. Cash those in first -- he will get both the long term capital gains rate and a higher basis. The goal is to get over the threshold for long term capital gains and to maximize the basis.

He can continue to do this as long as he wants to. I'd take some of the money and diversify. He's got enough to set up a decent portfolio on his own -- no mutual funds for him.

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12512 of 76237
Subject: Re: My brother made it! Date: 7/23/1999 7:45 PM
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hgerhardt asks,

What kind of advice should I give my brother who has over 3 million from working for Intel and taking in all stock options. He does not want to work anymore, he is 45, single and feels he could live off of 60,000 a year quite comfortably. Where should I direct him so the "wise men" will not take his money? Yes, his money is still in Intell which I would think some diversity would be quite foolish. Hugh

Check out the Safe Withdrawal Rate Calculator at the Retire Early Home Page, see link:

http://home.earthlink.net/~intercst/reindex.html

A $60,000 per year inflation adjusted withdrawal from a $3 million portfolio is only a 2% draw -- that's conservative by any calculation. Having all your eggs in one basket (Intel stock) may be a concern. You may also want to look at "Safe Withdrawal Rates for Concentrated Portfolios", see link:

http://www.geocities.com/WallStreet/8257/concport.html

intercst

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Author: messerb One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12518 of 76237
Subject: Re: My brother made it! Date: 7/24/1999 5:47 AM
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tonyw44 replies...
Yes, he should diversify, but there is a risk to that. If he cashes in his options and
he doesn't do it in a way that ensures that he pays a long term capital gains rate,
he could end up paying more money in taxes than he should.

Make sure he cashes in options that are older than one year first. Let's say he's
got options that were issued 18 months ago. Cash those in first -- he will get
both the long term capital gains rate and a higher basis. The goal is to get over
the threshold for long term capital gains and to maximize the basis...


tonyw44,
Are you saying that one does not have to own the shares from the options in order to take advantage of the long tem capital gains rate if they're held over a year?

Consider the two scenarios:
- Joe Fool has options that vested, say as early as yesterday. He exercises his options by buying the shares, but does not cash in. Joe holds on to the shares for over a year, and then sells.
- Jane Fool has options that vested a year ago. She exercises these options by buying the options and selling them in the same transaction (cashing in). Jane has not owned the shares for more than a year.

I know that Joe will be taxed at the long term captial gains rate. But is Jane taxed at long term rates too? This is probably better suited for the Tax Board, but since you brought it up ...

Thanks!
messerb


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Author: messerb One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12519 of 76237
Subject: Re: My brother made it! Date: 7/24/1999 5:53 AM
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Darn that Preview Reply! Hopefully, this one is easier to read.

tonyw44 replies...
Yes, he should diversify, but there is a risk to that. If he cashes in his options and he doesn't do it in a way that ensures that he pays a long term capital gains rate, he could end up paying more money in taxes than he should.

Make sure he cashes in options that are older than one year first. Let's say he's got options that were issued 18 months ago. Cash those in first -- he will get both the long term capital gains rate and a higher basis. The goal is to get over the threshold for long term capital gains and to maximize the basis...


tonyw44,
Are you saying that one does not have to own the shares from the options in order to take advantage of the long tem capital gains rate if they're held over a year?

Consider the two scenarios:
- Joe Fool has options that vested, say as early as yesterday. He exercises his options by buying the shares, but does not cash in. Joe holds on to the shares for over a year, and then sells.
- Jane Fool has options that vested a year ago. She exercises these options by buying the shares and selling them in the same transaction (cashing in). Jane has not owned the shares for more than a year.

I know that Joe will be taxed at the long term captial gains rate. But is Jane taxed at long term rates too? This is probably better suited for the Tax Board, but since you brought it up ...

Thanks!
messerb

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Author: rjm1 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12550 of 76237
Subject: Re: My brother made it! Date: 7/25/1999 9:54 AM
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What kind of advice should I give my brother who has over 3 million from working
for Intel and taking in all stock options. He does not want to work anymore, he is
45, single and feels he could live off of 60,000 a year quite comfortably. Where
should I direct him so the "wise men" will not take his money? Yes, his money is
still in Intell which I would think some diversity would be quite foolish. Hugh


Rethink the 60,000 per year. This is very important for a 45 year old. Does he want to travel, get married at 50? etc. Since he has money and will have time his expenses might increase.

Off the top of my head I would keep 1 million in Intel. Why? I am assuming he may not want to sell the stock so he will keep some. I also think long term it is a good investment. I also think he can live off the remaining 2 million (don't forget taxes as he diversifies. Better get a CPA to help with tax planning) Lets say he lives off of 4% of what ever the 2,000,000 brings. Lets say 75%+(of 2million) in stocks and indexes. 25%- in fixed income depending on his risk factors. I would sell covered call options on the Intell stock to generate income. I would plan on some of these being exercised and try and keep Intel to 1 million. If he does well on Intel opetions and appreciation he can take less out of the 2 million fund or just spend it.

Since he may have a lot of appreciation in the stock some chartible contributions etc may have tax advantages for him. See a CPA.

I think with 3 million he might be able to get into an investment partmership by contributing his stock and getting a diversified portfollio back with no taxes. Maybe look at the 2 million going this way. Check with a big brocker such as Merril Lynch.

He needs a good planner to minimize taxes. Should also do estate planning. Medical directive, power of attorney if disabled, long term care when older.

He should buy expert advice on what to do, but try and avoid fees that go on year after year if you can.

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Author: tonyw44 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12557 of 76237
Subject: Re: My brother made it! Date: 7/26/1999 10:31 AM
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That is a good question. I believe that if you just sell the options, you can claim them as a long time capital gain, but I am not 100 percent sure. Can someone correct me if I am wrong?

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