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Stock Option Planning

If managed properly, an employee stock option plan can be a lucrative investment opportunity.  However, employee stock options are more complicated than traditional investments such as stocks, bonds, or 401(k) accounts. They are unique investments with complicated tax features and due to their distinctive nature; require special planning.  In a nutshell these options allow you to purchase your employer’s stock at a pre-determined price.  Although you expect to profit when you exercise the option, its actual value can be volatile, with an uncertain impact on your portfolio if you don’t plan properly.  Unfortunately, many people fail to take full advantage of the potential opportunity provided by their employee stock options.  Understanding the nature of stock options, taxation and the impact on personal income is key to maximizing such a potentially lucrative perk.

Consider what kind of instrument you have. Most people get Non Qualified Stock Options (NQSO); others get Incentive Stock Options (ISO). The major difference is how and when they are taxed. It is important to know what you have so you can plan accordingly. Owning Employee Stock Options may carry additional risks, especially as you get more of them. It may not be wise to concentrate too much of your wealth in a single stock. As an employee you are already exposed to the risk of your employer: you work there and you depend on your employer for your income. You need to evaluate how much more of that risk you can afford.

Employee stock options come with many complex issues to consider. However, it can be an exciting opportunity for you and your family’s future.  At Life Certain Wealth Strategies our primary goal is to help you plan strategically to maximize the value of this unique opportunity.

One important attribute of employee stock option plans is the expiration timeframe.  Put simply, the expiration timeframe is the time you have to exercise your stock options to take advantage of your company’s stock price trading above the strike price of your options.  Employee stock option plans generally set expiration at 10 years post grant.   Deciding when to exercise is probably the most critical decision you face as an option holder. How can you derive the greatest value from your stock-based compensation to boost your net worth and improve your financial future?  In addition to evaluating when to exercise the options, you should consider the tax impact of the award. Let us help you understand big-picture concerns, such as how your stock-based compensation and other employer benefits will impact your financial future, including your retirement and estate planning.

At Life Certain Wealth Strategies, we recognize that understanding your company program and your options is the key to unlocking the potential of this investment opportunity.  We will help you learn more about your employee stock option choices and properly plan around them.  We will also assist you with leveraging opportunities to reduce the tax consequences associated with exercising your employee stock options.  Contact us today for a complimentary consultation.