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Inherited UPS Shares - To Sell or Not to?

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  • Inherited UPS Shares - To Sell or Not to?

    Hello errbody!

    First time posting. My buddy inherited about 23k worth of UPS shares a few years ago. He is a natural saver but has not invested in the stock market due to putting it off/not knowing how to go about it (has been self employed most of his career). He is now getting his investing in order. I helped him open up a solo 401k with fidelity. He has 50k in cash sitting in a checking/savings account earning nothing with a 10k car payment at 5.59%. I advised him to transfer some of the funds to ally, pay off the car loan asap, and perhaps think about starting to contribute to a roth. He has a home he bought for 80k, putting down about 20k. I told him to keep some of the cash in ally geared towards housing keep up.

    He is 41 years old, wants to retire at 70. He is a photographer making around 75K/yr. I have 3 questions.

    Should he sell his UPS shares? If so, what would be the best thing to do with the cash?

    Is there anything I am missing as far as things for him to consider for his future?


  • #2
    The answer would to a large extent depend upon the tax implications of potentially selling.  Understanding the tax implications will be important before a final decision is made.

    From the standpoint of the UPS stock relative to his other invested assets, imo I would sell the position with one caveat.  The reason being the stock is an outsized percentage of his total investible portfolio (1/3 roughly); taking significant single stock risk.  The caveat is that this person invests it in a diversified set of core funds; a world stock fund or a total US stock/total international stock combination.


    • #3
      I think you are giving him good advice.  As far as the share sale, he does have a high amount of concentration in one stock, but I'm guessing his basis is probably very low and he has a decent amount of long-term capital gains.  If he had a larger portfolio I would say just to keep it, but since he doesn't, and his capital gains tax rate should be at 15%, I would sell and reinvest as part of his overall asset allocation.


      • #4
        @ajm184 and @cgossage, thank you both for your feedback. I appreciate it. I was leaning towards him selling them as well. I'll advise to use those funds for Roth contributions in well diversified funds.

        Merci! :-)


        • #5
          Yeah, depends on the basis.  Presumably the shares had a step-up in basis, but even with that UPS has increased by 30%+ over the last 3 years or so.  So what was 23k a few years back is closer to 30k now.  Is he married?  If he's married filing jointly then his cap gains rate on sale will be 0% assuming no other income.  If single it'll be 15%.  That's a little over $1000k in tax.  Where he benefits is in two areas - improved diversification and thus less risk if investing the proceeds of the sale in a diversified fund/ETF, and (likely) less in dividend taxation annually.  I think $1000 is worth it, but that will be dependent on the individual.