How Can I Maximize Tax Efficiency In Retirement?

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Tax planning before and during retirement is a long game of strategy, using the resources on hand and estimating for the future. As a P&G employee, your retirement benefits—Savings Plan (401(k)), Profit Sharing Trust (PST), and potentially Restricted Stock Units (RSUs) and Options—all come with built-in tax rules that shape your starting hand. However, there are some power plays to make before and during retirement that might give you an additional advantage.

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There are many different strategies to maximize your retirement, including Net Unrealized Appreciation (NUA) (link to the blog post on this), Roth Conversions, and implementing charitable gifting strategies through a Donor Advised Fund (DAF) or Qualified Charitable Distributions (QCDs). These options can help you reduce your lifetime tax bill, increase your cashflow flexibility, and fulfill your generosity goals in a tax-efficient way. In this post we’ll explore how to take stock of your resources, capitalize on your potential to reduce lifetime taxes, and efficiently accomplish your financial goals.

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The NUA Strategy: Long Run Savings

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One commonly overlooked but highly effective strategy for reducing taxes during retirement is leveraging Net Unrealized Appreciation (NUA). NUA is a tax strategy that allows you to transfer appreciated company stock from your 401(k) into a taxable account, rather than an IRA.

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With the NUA strategy, you pay ordinary income tax on a stock’s original cost basis. The difference between the cost basis and current value of the stock is taxed at the more favorable long-term capital gains tax. This strategy is well-known within the Procter & Gamble circles because of the low-cost basis ($6.82/share) on Preferred Stock that can be found in most P&G employees' PST accounts. It can be a powerful card to play in retirement.

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When a P&G employee retires or separates from service, he or she has an option to roll the entire PST account into an IRA. However, this may not be the most tax-efficient decision. Instead, consider distributing the Preferred Shares (converted to common shares for this purpose) to a taxable brokerage account, while rolling the remaining common shares, funds, and cash into an IRA.

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This strategy allows you to pay ordinary income tax solely on the original cost basis of the stock—just $6.82 per share—while any excess growth is taxed later at the lower, long-term capital gains rate. Managed intentionally, this NUA stock account can lead to substantial tax savings, especially for long-tenured employees with significant PST balances.

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With the NUA, however, timing and process is critical. To preserve the low cost basis benefit of the NUA strategy, both the PST and Savings Plan must be distributed in the same calendar year. No distributions other than dividends should be taken from the PST account beforehand in order to preserve eligibility.

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The Tax Implications Of Gifting NUA P&G Stock

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For P&G retirees, gifting appreciated shares of P&G stock to family members can be a meaningful and tax-efficient legacy move. Not only does this strategy allow you to pass on a piece of the company you helped build, but it also creates a lasting connection between your loved ones and your career. It’s a unique way to share your story and values while potentially reducing your taxable estate. In addition, it can give younger recipients a jump-start on their own investing journey.

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It’s important to understand, however, that when you gift appreciated stock to another individual, the cost basis transfers with it. This means that if your recipient decides to sell the shares, they will assume the original cost basis. They will be responsible for paying taxes on the difference between the cost basis and the current value of the stock, at their personal capital gains tax rate.

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The Benefits of a Donor-Advised Fund (DAF)

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Gifting NUA shares to a church or charity can be a highly effective way to reduce your tax burden—especially if your total deductions exceed the ever-growing standard deduction. One way to maximize the impact is by bunching multiple years of charitable giving into a single year and transferring appreciated NUA shares to a Donor Advised Fund (DAF). This strategy allows you to avoid capital gains tax on the appreciation. You also receive a charitable deduction for the full fair market value of the shares if you are able to itemize deductions.

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For many retirees, a DAF simplifies the process: you make a larger gift upfront, receive the tax deduction in that year, and then recommend grants to charities over time. DAFs offer flexibility and control, making them ideal for retirees who want to be intentional with their giving and support multiple organizations at their own pace. Additionally, gifting NUA shares can help offset income that is generated in retirement from other sources such as RSUs, stock options, or Roth Conversions.

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With thoughtful tax bracket management, this strategy can unlock meaningful opportunities for charitable giving and long-term tax efficiency, especially in high-income years during early retirement when strategic giving can significantly reduce taxable income.

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Pairing a Roth Conversion with DAF Charitable Bunching

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Given your current IRA balance, it’s important to project how it might grow by age 73 or 75; at these ages, Required Minimum Distributions (RMDs) begin depending on your birth year. These mandatory withdrawals are based on your account balance at the end of the previous year, and the entire distribution will be taxed as ordinary income, potentially pushing you into a higher federal tax bracket and impacting things like your cost of Medicare and how much of your Social Security benefits are taxed. However, being proactive prior to these required distributions can help you manage the overall tax liability of your IRA dollars, all while allowing more retirement dollars to grow tax-free into the future.

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During lower-income years, often early in retirement or following a career transition, you should consider converting traditional IRA assets into a Roth IRA while you find yourself in the lower marginal tax bracket. This strategy works particularly well if your tax rate on the conversion is less than your expected tax rate when RMDs begin in the future. This “Roth Conversion” strategy allows you to pay taxes now on the amount you convert and enjoy tax-free growth and tax-free withdrawals down the road. As a whole, this strategy leads to increased flexibility in managing your overall tax liability through retirement.

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Retirees who are charitably inclined can offset the tax impact of a Roth conversion by bunching their charitable donations. P&G employees who wish to take full advantage of this strategy can donate appreciated shares of stock from the NUA into a Donor Advised Fund (DAF). This allows them to make a large charitable gift in one year, avoid capital gains tax, and receive a deduction for the full fair market value of the shares.

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When paired together, a Roth conversion and a DAF contribution can create a powerful planning opportunity, aligning your tax strategy with your philanthropic goals.

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Qualified Charitable Distributions: Tax-efficient Giving

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Qualified Charitable Distributions (QCDs) were introduced in 2006 through the Pension Protection Act to encourage charitable giving while offering tax relief to retirees. Available to individuals age 70½ and older, QCDs allow you to donate up to $100,000 per year directly from your IRA to a qualified charity, without the distribution counting as taxable income. QCDs also count toward satisfying your Required Minimum Distribution (RMD), reducing the amount you’re required to withdraw and pay taxes on. This makes QCDs a valuable tool for managing taxable income in retirement, especially for retirees who take the standard deduction.

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Retirement tax planning for P&G employees is about building a strategy that allows you to thoughtfully play the cards you’ve been dealt. By understanding the tax rules tied to your retirement benefits and using strategies like NUA, Roth conversions, and charitable gifting through DAFs and QCDs, you can reduce your lifetime tax bill, increase your cashflow flexibility, and align your financial decisions with your personal values.

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The earlier you start planning, the more opportunities you’ll have to turn a complex retirement landscape into a well-played, tax-efficient future.

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