Retiring Early from P&G Just Got a Lot Harder
By: Daniel Schneider, CFP®
For Decades, NUA Made Retiring Early Easier
For decades, one of the most valuable retirement planning opportunities available to P&G employees is something called Net Unrealized Appreciation (NUA). Its power comes from the Preferred P&G shares, which carry large embedded gains thanks to their uniform low cost basis of $6.82/share. When used correctly, this strategy helps families save tens, even hundreds, of thousands of dollars in taxes in retirement and bridge the gap between retirement and 59 ½, when withdrawals from IRAs are no longer assessed a 10% penalty.
In short: NUA is rolling the Preferred P&G shares out of the PST at a low cost basis ($6.82/share) into a brokerage account, only paying income tax on the total cost basis. Families could then work within the 0% capital gains tax bracket by selling shares of P&G in their brokerage account, using dividends, etc., to fulfill lifestyle expenses, execute Roth conversions (stay tuned for a dedicated article on this strategy), and more with little to no taxes paid. This is an oversimplification of the NUA process and strategy. I strongly encourage you to read our more in-depth article on the strategy here.
What Changed in 2024
As of 2024, this changed forever.
In 2024, P&G depleted the preferred stock shares used for contributions into employees’ PSTl, meaning employees are no longer receiving contributions of those preferred shares in their PST. Consequently, all new PST contributions count towards the annual contribution limit in your employer-sponsored retirement plans. For high-income earners, no matter where you are in your career, this is a big deal, which we will cover in a future article.
Younger Employees Feel This Change Most
For employees nearing retirement, this isn’t a massive change to their retirement plans. However, for new and younger employees with ambitions of retiring early, the game has changed completely. Without new contributions on preferred shares, utilizing the NUA strategy will be vastly less effective, creating a need for new strategies to achieve early retirement goals.
Three Ways to Rebuild Your Flexibility
If NUA isn’t as powerful as it was before, what can one do? Luckily, given proper planning, there are a few options available:
Above and beyond Roth and Traditional IRAs, start saving to a brokerage today, sometimes called a “taxable” account, while working. We love this strategy. Saving to a brokerage account today offers tremendous flexibility, liquidity, and planning opportunities to one's financial life.
Here’s why we love this approach:
“Tax Loss Harvesting”: If an investment in this account experiences a loss, and you sell that position, you can use that loss to offset any gains you capture. You may also use up to $3,000 (current law) of those losses against your income for the year, then carry over an unlimited amount of the remaining losses to be available for use in the future.
Preferential Tax Treatment: Withdrawals taken from a traditional IRA are taxed as ordinary income. However, in a brokerage account, if you need cash and sell a position you’ve held for over 12 months, that gain is taxed at “long-term capital gains” rates. Those brackets are 0%, 15%, and 20%. If there is cash held in the brokerage account, there is no tax or penalty applied when withdrawing that cash.
No access requirements. You can access the money in this account at any time and any age without penalty.
To be fair, these accounts have trade-offs too. You give up the tax deferral an IRA or your PST offers, and dividends and interest are taxed in the year you receive them. The right mix depends on your full financial picture, and that’s exactly what planning is for.
The Rule of 55, which is accessed in retirement. This rule allows individuals who leave a company in the year they turn 55 or older to take penalty-free withdrawals from their employer-sponsored retirement accounts (not an IRA) from which they’ve separated. These withdrawals are still subject to ordinary income tax. It is very important to note that rolling the employer-sponsored plan into an IRA removes the availability of the NUA strategy entirely.
Substantial and Equal Periodic Payments (SEPP). This one gets a little tricky. Typically withdrawing money from an IRA before age 59 ½, you are assessed a 10% penalty. However, through a special tax code provision one can, using IRS-approved calculations, take “substantial and equal periodic payments” from any IRA prior to 59 ½ without being assessed the penalty. One can access this at any time, but we often would reserve this for income needs in retirement.
These payments must continue for the longer of 5 years or until you reach age 59 ½. If you break the rules, the IRS may assess the 10% penalty retroactively.
The “payments” or withdrawals using this method are still subject to ordinary income tax.
What to Do Now, Wherever You Stand
While new contributions of preferred shares are no longer being made, making NUA less powerful for new and younger employees, it does not mean early retirement is unachievable. It just means planning must begin sooner. This is what we do with families every day: run the scenarios, Plan A, Plan B, Plan C, so you know exactly where you stand.
If you’re 25 or more years from retirement, or new to the company: start saving in a taxable account today. That’s the move. The earlier you start, the more flexibility you build, and the more this change becomes a footnote in your plan instead of a headline.
If you’re about 15 years from retirement, or have 15 years with the company: you likely hold preferred shares, so NUA still works for you. But it’s no longer the entire picture. This is the right time to run your plan and see how NUA, taxable savings, and your other benefits fit together, while there’s still plenty of runway to adjust.
If retirement is just a few years away: NUA is still going to be an incredibly powerful tool for you. It may change some of the calculations, but I’m not concerned about this change for you nearly as much as I am for younger employees. It’s worth a review to see the impact, but this shouldn’t be changing many decisions.
Here’s what I believe: business isn’t business when it comes to your finances. Finances are personal. And the whole job is confidence: knowing you can retire, take the trip, make the move. If you’d like to talk through what this change means for your timeline, we’d welcome the conversation. And if you want to keep up with what’s changing for P&G employees, follow along here. There’s more coming.
Start with a Conversation
You probably have questions. Let’s start with a conversation.
Daniel Schneider, CFP®
Lead Advisor | P&G Benefits & Advanced Planning
513.587.2744 | DanielS@Horanwealth.com
About Daniel Schneider
Daniel Schneider, CFP®, is a Wealth Advisor at HORAN Wealth and Lead Advisor of the firm’s P&G Advisory Team. Daniel came to wealth management with a mission born from personal experience: every client deserves to know exactly where they stand, what their plan looks like, and who is in their corner. He measures his work by the confidence it creates: the moment a client knows they can retire, make the move, or take the next step toward the life they want.
About the HORAN Wealth P&G Advisory Team
The HORAN Wealth P&G Advisory Team works closely with Procter & Gamble professionals, retirees, and their families nationwide, applying the same discipline, long-term thinking, and stewardship that defines a P&G career to the way we approach personal wealth. Led by Daniel Schneider, CFP®, alongside Keith Prince, CFP®, and Amy Rice, the team brings 30 years of combined P&G experience across PST, company stock and ESOP strategies, NUA, LTIP and STAR planning, and the retirement, tax, and estate decisions of a successful P&G career.
