Managing a Windfall

One signed a multimillion-dollar contract; another bought a lucky lottery ticket; a third sold property rights. We’ll look at what they did with their sudden gains and what you should do with yours.

the NBA contract is over.”

To that end, Crittenden recommended that Simmons purchase a variable annuity product in order to guarantee income later in life. Simmons will not start taking income from the annuity until after he leaves the NBA. “It’s so powerful to sit down with your client and have them know exactly what income stream they’re going to receive in the future,” she says.

With regard to Simmons’ investments, Crittenden has built a strategy around having two distinct portfolios: one that is tax-oriented and another that is growth-oriented. “I tend to buy short-term, tax-free municipal bonds or tax-favorable instruments to pay taxes,” says Crittenden, “because the worst thing you want to do is tell a client in April that you made all this money and now you have a huge tax bill and you have to sell stocks to pay it.”

Simmons is in the top federal tax bracket, 35%, according to Mark Goldstick, a CPA and the chief financial officer of Priority Sports & Entertainment. Illinois, where Simmons resides, also has a 3% state tax. So every month, Crittenden uses the income thrown off by those dividend-paying bonds to fund Simmons’ considerable tax bill.

The other portfolio Crittenden created for Simmons utilizes a tried-and-true investment strategy: dollar-cost averaging, in which investors commit a set amount of money to the market on a monthly basis or at some other pre-determined interval. “It doesn’t matter whether you can afford to invest $50 a month or $50,000, dollar-cost averaging is still the best way to invest,” she says.

Crit

tenden says Simmons’ overall portfolio is made up of 65% stocks and mutual funds and 35%
bonds and other fixed-income investments. “I pay a lot of attention to asset allocation too,” she says, adding that Simmons holds a broad range of domestic and international investments, including small-, mid-, and large-capitalization stocks in industries as diverse as pharmaceuticals, energy, and banking.

Since Simmons has a 7-year-old son, Crittenden advised him to open a 529 college savings plan that will provide fully for college expenses.

Part of Goldstick’s job is to prepare the personal tax returns and ensure the proper tax compliance for Simmons and Priority’s other athletes, which he says, “keeps their name on the sports page and off the front page.” The head of Goldstick Tax Service L.L.C. in Chicago, Goldstick says that high-net-worth individuals, or those who come into windfalls, can sometimes minimize or delay taxes by deferring income, accelerating or deferring deductions, and buying financial products like tax-deferred annuities.

Besides giving investment advice, Crittenden tries to get clients to think critically about their spending. For instance, Crittenden and Simmons agree that luxury automobiles are one of Simmons’ favorite toys. “I always tell Bobby that it’s his money, and that I just give advice,” she says. “But anytime he tells me he wants to buy a new car I say: ‘OK, then which one are you going to sell?”

Besides purchasing high-end cars, Simmons — like other athletes with big contracts — has spent considerable money on close relatives. Susan Bradley, the

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