If you’ve spent years building a career in the oil and gas industry, chances are your compensation includes employer stock, well-structured retirement savings plans, pensions, and/or other generous benefits programs. Many of these benefits require attention, as set it and forget it can lead to less-than-optimal retirement outcomes. While there are many important considerations and variations between benefits packages and plans, here are a few commonly seen planning opportunities.
Employer Stock: Understanding Concentration Risk
The oil and gas sector is known for its volatility. Sharp swings in energy prices can affect not only the value of your employer stock, but also the stability of your job. That means you’re exposed to a “double risk” scenario where your income and investments could suffer at the same time.
Diversifying with Intention
A rules-based approach to diversifying employer stock awards before they become too significant a risk to your financial goals is important. We know it’s not as simple as “sell everything”, especially when capital gains taxes come into play. That’s why we work with clients to create a diversification plan that balances tax impact, timing, and financial goals.
Net Unrealized Appreciation: A Tax-Smart Exit Strategy
If your retirement plan includes company stock, you may have access to an option called Net Unrealized Appreciation (NUA). This allows you to move your employer stock from a 401(k) to a taxable brokerage account at retirement (or another triggering event), unlocking more favorable long-term capital gains tax rates on the growth element—rather than ordinary income tax.
The potential benefits of utilizing this option are highly dependent on your individual circumstances and must be executed correctly. It requires a full lump-sum distribution in a single tax year after a triggering event like separation from service after age 55, or reaching age 59½.
Let’s look at an example.
Client Scenario
An employee left their company in 2023 and took a small withdrawal from their 401(k) for a short-term need. In 2024, they came to us with $50,000 in highly appreciated employer stock (with a $10,000 cost basis).
Had they executed a full lump sum under NUA in 2023, they could’ve paid 24% tax on $10,000 and just 15% on the $40,000 in appreciation. But because they had already taken a prior-year withdrawal, they were disqualified from using NUA—leading to the full $50,000 being taxed at 24%.
Early coordination could have unlocked $3,600 in tax savings.
Pension Decisions: Lump Sum or Lifetime Income?
If your employer offers a pension, deciding between a lump sum payout and a lifetime annuity requires a close look at your goals, tax strategy, legacy plans, and the interest rate environment.
- Lump sum: Gives you control and liquidity, but it also introduces market risk.
- Annuity: Offers a guaranteed income stream, but may not keep up with inflation, and might not provide as large a legacy to your beneficiaries or spouse depending on the options selected.
- Key Consideration: In high-interest rate environments, lump sums tend to be lower, making the annuity returns relatively more attractive during those time periods. Keeping a close eye on rates can help maximize benefits depending on lump sum versus annuity elections.
Your advisory team can run the numbers, review segment rates, and help you evaluate which path better aligns with your goals and circumstances.
Mega Backdoor Roth: Tax-Free Growth for High Earners
Many oil and gas professionals contribute to the after-tax portion of their retirement plans, but many miss out on significant future tax benefits. Enter the Mega Backdoor Roth strategy. By converting after-tax contributions to Roth regularly, you can ensure all future growth is tax-free, not just tax-deferred.
Example Client Comparison
- Client A contributed $20,000/year for 10 years, never converted to Roth. Accumulated $300,000—of which $100,000 is growth taxable at ordinary income rates.
- Client B did the same but in a perfect scenario converted contributions to Roth immediately. Their $300,000 is completely tax-free—no future income tax, no required minimum distributions.
Some plans offer automatic Roth conversions, while others require a manual process. We help clients track and implement these conversions efficiently, and make sure the Mega Backdoor Roth strategy doesn’t interfere with any traditional Backdoor Roth plans.
Planning Ahead Gives You Options
In a sector as dynamic as oil and gas, waiting to make financial decisions until a big event (retirement, job change, market crash) can limit your options. Whether you’re managing employer stock, evaluating your pension choices, or optimizing after-tax retirement contributions, we believe the best outcomes come from proactive planning.
At Alaska Wealth Advisors, we work with professionals across the energy sector to turn complex benefits into long-term financial security.
Connor Michael, CFP®
Senior Financial Advisor
Connect With Us at the AOGA Conference!
If you’re an employee in the oil and gas industry and wish to explore these strategies further, or learn how we can assist you with other financial planning needs, we invite you to visit our booth at the upcoming Alaska Oil and Gas Association Conference on August 27 and 28! Our team will be available to answer your questions and discuss personalized solutions.
The opinions expressed are those of Alaska Wealth Advisors, LLC., as of the date of publication and subject to change without notice.
Alaska Wealth Advisors, LLC is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Alaska Wealth Advisors’ investment advisory services can be found in its Form ADV Part 2 and/or Form CRS, both of which are available upon request.
