The Frank Duke PST Distribution Strategy

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The Frank Duke PST Distribution Strategy offers Procter & Gamble (P&G) employees a powerful way to optimize their retirement assets. Named after Frank Duke, a former P&G employee, this two-step approach leverages the Profit Sharing Trust (PST) and IRS tax provisions to potentially boost after-tax value. By pairing Net Unrealized Appreciation (NUA) with a 60-day rollback, it’s tailored for retirees seeking tax efficiency and flexibility from their PST holdings.

What Is the Frank Duke Method?

This strategy combines NUA—a tax-advantaged method for distributing employer stock—with a partial IRA rollback. Step one: take a lump-sum PST distribution, splitting it between P&G shares (common or preferred, though typically preferred are targeted) moved to a taxable account via NUA and a rollover to an IRA. Step two: within 60 days, roll back a portion of the taxable account shares—often exceeding the stock’s $6.82 per share cost basis for preferred shares—into an IRA. The cost basis is taxed as ordinary income in the distribution year, but the rollback offsets this hit. While the NUA shares qualify for lower long-term capital gains rates when sold, this approach enhances tax savings and flexibility.  

Potential benefits include:  

  • Tax savings by shifting appreciation to capital gains rates  

  • Diversified account types (taxable and tax-deferred)  

  • Greater flexibility for lifestyle funding  

  • Broader investment options beyond PST limits  

  • Enhanced estate planning opportunities

For NUA basics, see our post: vaultis.com/procterandgamble/nua

How It Works

Here’s the mechanics in action:  

Step 1: Lump-Sum Distribution  

  • Distribute the entire PST balance in one tax year, typically after retirement or separation.  

  • Split the distribution: roll most assets into an IRA, transfer P&G shares—most often preferred, with their $6.82 cost basis—to a taxable account using NUA.  

  • Full distribution is key to qualify for NUA’s tax treatment.

Step 2: Partial Rollback  

  • Within 60 days, roll back a portion of the taxable account funds into an IRA—often more than the cost basis ($6.82 × shares for preferred).  

  • This reduces the immediate ordinary income tax, deferring it to the IRA, while NUA remains taxable at capital gains rates upon sale.

Key Considerations:  

  • Timing: The lump-sum distribution must occur after a triggering event—separation, reaching age 59½, or death—to qualify for NUA treatment.  

  • 60-Day Window: The IRS enforces this strictly—plan ahead.  

  • Precision: Mistakes risk losing tax benefits, so execution is critical.

Tax Advantages with NUA

The Frank Duke method shines by blending NUA and rollback. NUA can apply to common or preferred shares, but preferred shares—with their low $6.82 cost basis—are most often targeted for their significant appreciation. The basis is taxed as ordinary income upfront; the rollback offsets this immediate tax hit by moving funds back to an IRA, potentially dropping the taxable basis of the remaining shares to near zero. Those shares, now in the taxable account, can be sold at long-term capital gains rates—often 15-20% versus ordinary rates up to 37%. For P&G retirees with decades of preferred share growth (contributions ended 2024), this can mean substantial savings.  

For example, consider a PST with $1 million in preferred shares at $170 each—5,882 shares. The cost basis is $40,115 (5,882 × $6.82), taxed as ordinary income that year. Rolling back at least $40,115 of P&G shares’ value from the taxable account to an IRA offsets this tax hit entirely, leaving the remaining shares—worth $959,885 in NUA—in the taxable account. Here’s what happened: you shifted nearly $1 million from your retirement account, which would have been taxed as ordinary income upon distribution, to just under $1 million (after the rollback) now treated as long-term capital gains when sold—potentially saving thousands.

Pairing with a Donor-Advised Fund (DAF)

For charitably inclined retirees, a DAF complements or replaces the rollback:  

  • Post-NUA, donate appreciated P&G shares to a DAF.  

  • Claim a deduction for the full market value, offsetting the $40,115 ordinary income from the cost basis.  

  • Avoid capital gains tax on the appreciation, growing funds tax-free in the DAF for future giving.

This aligns tax savings with philanthropy—a win for retirees who value giving.


Is It Right for You?

The Frank Duke method suits many P&G employees looking to optimize their PST distributions. Its complexity—timing, rollback precision, tax interplay—demands expertise. At Vaultis Private Wealth, we specialize in P&G retirement plans, helping you assess and execute this strategy to maximize your PST’s potential. Contact us to see if it fits your retirement goals.


Disclosures:

The information in this blog is for educational purposes only and is not intended as personalized financial, tax, or legal advice. The Frank Duke PST Distribution Strategy may not be suitable for everyone, as individual financial goals, risk tolerance, and circumstances differ. Consult a qualified financial advisor, tax professional, or legal advisor before acting to evaluate your specific situation and determine if this strategy fits your needs. Past performance does not guarantee future results, and all investments involve risks, including the potential loss of principal. Tax laws and regulations may change, potentially affecting the strategies described. Vaultis Private Wealth does not guarantee the accuracy, completeness, or outcome of this information and is not affiliated with Procter & Gamble, which does not endorse this content.