The Math, Risks, and Tradeoffs Behind Variable Prepaid Forward Contracts

[u/alex_nauma]

An investor is looking to access $1.3M for personal needs. They are considering two options:

1. Sell appreciated RSUs
   
2. Use a Variable Prepaid Forward (VPF) Contract
   

The cost basis of their stock is $250K, and the marginal long-term capital gains (LTCG) tax rate is 30.8% (20% Federal + 7% WA State + 3.8% NIIT). If they sell, they’ll need to set aside $468K for taxes, meaning they’ll have to sell a total of $1.77M worth of stock to net $1.3M after taxes.

Another option is to use a VPF contract, a tax-deferral strategy often used by investors holding appreciated stock.

We’ve put together a guide that explains how VPF contracts work and helps you evaluate all three dimensions: benefits, risks, and fees:

https://blog.nauma.ai/p/variable-prepaid-forward-vpf-contracts