Category: Investing & Tax Planning

SeedSafe Financial is an expert in stock compensation and tax planning. These articles dive into the nuances of stock types and ways to plan for higher income years.

The Headlines Change. A Sound Investment Philosophy Doesn’t.

What this quarter reminds us about diversification, discipline, and building wealth that lasts.

Every few months, the financial headlines offer investors a new reason to feel optimistic – or anxious.

One year it’s inflation. Then it’s rising interest rates. Then geopolitical conflict. Today, it’s artificial intelligence (AI).

The headlines change, but the emotional experience often stays the same: uncertainty.

At the same time, many people feel like the economy doesn’t match what they’re hearing in the news. Market indexes reach new highs while everyday expenses still feel elevated. Some industries are thriving while others are slowing. You may even feel financially secure while wondering why so many people around you don’t.

These aren’t contradictions.

They’re reminders that markets and economies are complex, and that successful investing requires looking beyond a single headline. The below information comes from our Q2 2026 Market Review released to our investment management clients. Prefer to watch the video? Here is the our YouTube Link.

A Strong Economy Doesn’t Feel the Same to Everyone

One of the defining themes we’re watching this year is what economists call a K-shaped economy.

Imagine the letter “K.” One side moves upward while the other moves downward. That’s a useful picture of today’s economic landscape.

Many businesses continue to report healthy earnings, and households with significant investment portfolios have generally benefited from rising markets. At the same time, many families continue to feel pressure from higher living costs and wage growth that hasn’t fully kept pace with inflation.

Both experiences are real.

Understanding that helps explain why economic headlines often seem contradictory – and why investor sentiment can feel disconnected from market performance.

There’s another important shift happening beneath the surface.

Historically, many families built the majority of their wealth through homeownership. Today, particularly among professionals in technology and other high-growth industries, a much larger portion of wealth is invested in markets.

That changes how volatility feels.

When your financial future is increasingly tied to your investment portfolio, market swings naturally become more personal. It’s one reason thoughtful planning matters just as much as thoughtful investing.

The Market Story Is Becoming More Interesting

For several years, it seemed as though the entire stock market revolved around a handful of large technology companies.

AI remains one of the most important investment themes in today’s markets. The largest technology companies continue to generate impressive earnings growth, and the long-term potential of AI remains compelling.

What’s changed is how the market is responding.

Instead of concentrating gains in only a few companies, market leadership has begun to broaden. Companies outside the largest technology names have contributed meaningfully to overall market performance, while international markets have also delivered strong returns.

That’s encouraging.

Healthy markets often broaden over time rather than relying on a small group of companies to carry returns indefinitely.

We’re also watching another important question emerge.

Investors are no longer rewarding companies simply for spending heavily on artificial intelligence (AI). Increasingly, they want to see measurable results. The conversation has shifted from “Who is investing in AI?” to “Who is creating lasting value from it?”

That distinction matters.

We believe AI has the potential to improve productivity well beyond today’s market leaders. As adoption spreads, smaller companies may become more efficient, more competitive, and more profitable than they’ve been in years. If that happens, the long-term benefits could extend far beyond the companies dominating today’s headlines.

International Diversification Continues to Matter

International markets have quietly reminded investors why diversification remains one of the most durable investment principles.

Emerging markets have benefited from growing demand for semiconductor manufacturers and AI infrastructure, while developed international markets have found strength in sectors such as financials and industrials.

Different regions are succeeding for different reasons.

That’s precisely why diversified portfolios matter.

We don’t know which country, industry, or company will lead over the next decade. Rather than attempting to predict every shift in leadership, we believe it’s wiser to build portfolios capable of participating wherever opportunities emerge.

Why Bonds Are Becoming Interesting Again

During much of the past 15 years, unusually low yields limited the income available from high-quality bonds.

Today’s higher yields have improved the income outlook, although bonds remain subject to market and interest-rate risk.

With inflation-adjusted, or “real,” yields back in positive territory, bonds may offer more income potential than they did during much of the low-rate period.

That creates meaningful opportunities for fixed income investors.

It doesn’t necessarily mean investors should dramatically increase bond allocations overnight. It does mean that bonds are once again earning their place as an important component of diversified portfolios.

Sometimes the most meaningful investment opportunities aren’t the ones making headlines.

Why We’re Making a Thoughtful Change

One of the misconceptions about investment management is that success comes from making frequent, dramatic changes.

In reality, thoughtful portfolio management is usually much quieter.

Most of our work involves evaluating whether changing economic conditions create opportunities to refine (not reinvent) a portfolio.

That’s exactly how we’re thinking about municipal bonds today.

For many households in higher federal tax brackets, municipal bonds currently offer an attractive combination of strong credit quality and compelling after-tax income. In some cases, their tax advantages allow investors to earn a higher after-tax yield than comparable taxable bond funds.

We are incorporating core municipal bond exposure into certain taxable portfolios where a client’s tax situation and overall allocation support it. For some California residents, California-specific municipal bond ETFs may provide additional state-tax benefits, although they also increase exposure to a single state. Municipal bonds and municipal bond funds remain subject to interest-rate, credit, call, liquidity, and other investment risks, and tax treatment varies by investor and security

This isn’t a change in philosophy.

It’s an application of the same philosophy we’ve always followed: making thoughtful adjustments when the evidence supports them while remaining committed to long-term discipline.

Investing Beyond the Headlines

Markets will always provide reasons to react.

Some years it’s inflation.

Some years it’s interest rates.

Today it’s artificial intelligence.

Next year it will almost certainly be something else.

Our responsibility isn’t to predict which headline will dominate next quarter.

It’s to understand the deeper forces shaping markets, make measured adjustments when opportunities arise, and remain disciplined when uncertainty inevitably returns.

That means continuing to diversify across companies, industries, and regions. It means recognizing when fixed income once again offers compelling value. It means evaluating new technologies with curiosity rather than hype. And it means remembering that successful investing is rarely about making one perfect decision – it is about making many thoughtful small decisions consistently over time.

A Final Thought

Financial planning isn’t about eliminating uncertainty.

It’s about building enough resilience that uncertainty doesn’t have to determine your future.

Markets will continue to change. Economic cycles will come and go. New technologies will emerge, and new headlines will compete for our attention.

A sound investment philosophy, however, should be built to outlast all of them.

Sources: J.P. Morgan Asset Management, Guide to the Markets – U.S., data as of June 30, 2026; Vanguard, Market Perspectives, June 24, 2026; Federal Reserve economic and household financial data; and SeedSafe Financial internal model-portfolio yield analysis as of June 8, 2026.

Disclaimer: This material is provided for informational and educational purposes only and does not constitute legal, tax, or investment advice. The strategies discussed may not be appropriate for all individuals or situations. Eligibility and suitability depend on your specific circumstances, financial objectives, and current laws, which are subject to change.

Any examples are hypothetical and provided for illustrative purposes only. They do not represent actual client outcomes, and results will vary. You should consult with qualified tax, legal, and financial professionals before making decisions related to the topics discussed.

References to third-party resources or websites are provided for informational purposes only. SeedSafe Financial, LLC does not endorse or assume responsibility for the accuracy or completeness of external content.

Investing involves risk, including possible loss of principal. Past performance is not indicative of future results. Market conditions, economic data, and forecasts are subject to change without notice.

Advisory services are offered through SeedSafe Financial, LLC, an SEC-registered investment adviser. Registration with the SEC does not imply a certain level of skill or training.

SpaceX IPO Planning: What Employees Should Know About Stock, Taxes, and Diversification

As SpaceX prepares for its IPO, there is no shortage of headlines and opinions on where the stock will go. Whether you believe in the “long-awaited opportunity” or the “over sold hype”, this is an opportunity for one of the world’s most ambitious companies.

For employees, a SpaceX IPO is something far more personal.

It’s not simply a market event – It’s a moment that can reshape your financial life.

And while much of the attention will focus on what happens on the first day of trading, the decisions that matter most often happen quietly in the weeks, months, and years that follow.

Questions like:

How much of your SpaceX stock should remain part of your long-term plan?
When does it make sense to diversify?
How do taxes fit into the picture?
Should you participate in the Directed Share Program?
What role should this wealth play in the life you’re building?

These aren’t just financial decisions – they’re life decisions.

Wealth Creation Is Only One Part of the Story

One of the biggest misconceptions around IPOs is that everything happens at once.

The company goes public. Shares begin trading. Employees either sell or hold.

In reality, liquidity often unfolds over time.

Lockups expire. Trading windows open and close. Different share types carry different tax implications. Opportunities to sell may arrive in stages rather than all at once.

Which means the most important question is rarely:

“When should I sell after the SpaceX IPO?”

A more useful question is:

“What do I want this wealth to do for my life?”

Because once you know the answer to that, the decisions around selling, holding, diversifying, and planning become much clearer.

Understanding the Timeline Creates Freedom

Many employees focus on when shares become available.

Just as important is understanding when you’re actually allowed to trade.

Lockup restrictions and blackout periods serve different purposes, and the distinction matters.

You may reach a point where shares have technically been released, yet company policies still prevent you from selling.

While that can feel frustrating, it reinforces an important principle:

Good planning starts before liquidity arrives.

Knowing how various trading windows, lockups, and restrictions interact can help you make decisions from a place of clarity rather than urgency.

When Might SpaceX Shares Become Eligible for Sale?

Please note: Timeline illustrations are based on publicly available offering materials and reporting as of June 1, 2026. Final lockup provisions, trading restrictions, release schedules, and employee eligibility requirements may change prior to or following the public offering.

Phase 1: SpaceX IPO Launch

DSP shares may be available for trading on IPO day.

Phase 2: First Liquidity Window (performance based)

Event	Additional Release	Cumulative Available	Can You Sell?
Q2 Earnings + 2 Days	Up to 20%	Up to 20%	Maybe
Stock Trades 30% Above IPO Price (5 of 10 days)	Up to 10%	Up to 30%	Maybe

Phase 3: Gradual Release Period (time based)

Timing	Additional Release	Cumulative Available
Day 70	+7%	37%
Day 90	+7%	44%
Day 105	+7%	51%
Day 120	+7%	58%
Day 135	+7%	65%

Phase 4: Major Liquidity Release

Event	Additional Release	Cumulative Available
Q3 Earnings + 2 Days	+28%	93%

Phase 5: Final Release

Event	Additional Release	Cumulative Available
Day 180	Remaining Shares	100%

Discipline Often Matters More Than Timing

For some employees, trading restrictions, blackout periods, or insider-status requirements may make a 10b5-1 plan worth exploring.

What restrictions may apply?

Cap table lock period: This is the time when share holdings are locked to calculate what amount can be offered during the direct listing. Generally no exercises of stock options can occur during this time.
Black Out Period/Trading Windows: Key employees will be given trading windows in which to freely sell shares. Trading windows commonly occur after earnings releases, but timing and eligibility may vary by employee and should be confirmed with company policy. This is to protect the public from potential insider trading. Your company HR should tell you if you are on this list.
Trading Restrictions: Some key employees may not be allowed to freely trade shares at any point. This results in pre-clearance of every trade or a requirement for you to have a longer term trading plan in place. Also known as a 10b5-1 plan, you would file this with the SEC and your company.

At its core, a 10b5-1 plan isn’t about trying to outsmart the market.

It’s about creating a framework for future decisions before emotion enters the conversation.

When headlines are loud and stock prices are moving quickly, having a clear plan can help reduce the pressure to react.

Thoughtful liquidity decisions are often easier to make when they are guided by a pre-established plan rather than short-term emotion.

Every Liquidity Window Is an Opportunity to Reassess

If SpaceX follows a phased release structure, employees may have multiple opportunities to access liquidity over time.

That can be incredibly valuable.

Not because it creates more chances to predict stock prices – but because it creates more opportunities to make thoughtful decisions.

Perhaps an early sale helps create financial security.

Perhaps another portion remains invested in the company you’ve helped build.

Perhaps some proceeds are earmarked for a home purchase, a charitable goal, family support, or long-term investing.

The objective isn’t perfection. The objective is alignment.

To make decisions that support both your financial future and the life you want your wealth to serve.

If you could wave a magic wand, what would you want your day to day to look like post SpaceX IPO?
What is a meaningful life for you? Do you want to keep working in tech? Start your own company? Spend time with your family and kids before they are out of the house? Work with your hands?
Who do you want to know is secure and comfortable if something were to happen to you?

These questions can be a great starting point in understanding how financial planning can support your life.

One of the Most Valuable Decisions May Be Which Shares You Sell

As shares become eligible for sale, employees may have the ability to choose specific tax lots.

That means a sale could come from:

RSUs
ISO exercises
ESPP shares
NQSO exercises

Two employees selling the same dollar amount of SpaceX stock may end up with dramatically different tax outcomes depending on which shares they choose to sell.

The sale decision matters. The tax-lot decision can matter just as much.

Not All Shares Tell the Same Story

For many employees, equity has accumulated through multiple paths over the years.

You may hold:

RSUs
ISOs
NSOs
ESPP shares

While these shares may all represent ownership in the same company, they often carry very different tax considerations and planning opportunities.

Determining which shares to sell first can significantly affect your overall outcome.

This is where thoughtful recordkeeping becomes surprisingly important.

The spreadsheets and tax lots may not be the most exciting part of IPO planning, but they’re often where meaningful opportunities (and costly mistakes) are found.

Your statements and stock portal will be most helpful in reviewing expected upcoming compensation, what options you currently have left to exercise, and what total holdings are available to use during the early release periods during the SpaceX IPO.

If you do have options left to exercise, we suggest working with a tax professional to review your options and the overall impact expected on taxes.

Taxes Have Their Own Timeline

One of the most overlooked aspects of an IPO is that taxes don’t always arrive when liquidity does.

We are also paying close attention to how vesting events interact with lockup restrictions. If shares vest while selling remains restricted, employees may need to fund withholding obligations from cash rather than stock sales. That possibility makes advance planning especially important.

This is one reason proactive planning matters so much. SpaceX may be kind enough to match RSU vesting periods to open trading windows.

You can also put in place a 10b 5-1 plan to match your vesting schedule if you’d like to take further risk off the table post-SpaceX IPO.

A successful liquidity event isn’t simply about creating wealth.

It’s about making sure cash flow, taxes, and financial decisions remain coordinated throughout the process.

A Public Market Creates New Possibilities

For employees holding incentive stock options, the transition to a public company can create new planning opportunities.

Strategies that may have felt difficult or risky while the company remained private can become more flexible once shares trade in a public market.

That doesn’t automatically mean exercising or selling is the right move.

It simply means the range of available options expands.

And with more options comes the opportunity to build a strategy that better reflects your goals, timeline, and tolerance for risk.

For more conversation on the implications of stock options in an IPO, check out our blog post Navigating IPOs and Incentive Stock Options (ISOs) and Stock Options and the Alternative Minimum Tax

The Directed Share Program Deserves More Than a Quick Decision

The Directed Share Program may allow eligible employees to purchase shares at the IPO price.

For some, that opportunity will be appealing. For others, it may require a deeper conversation.

Many SpaceX employees already have significant exposure to the company through their compensation, career, and accumulated equity…but they’ve also seen the “rocket ship” SpaceX has been from a price standpoint.

Adding more shares may strengthen a position you believe in – or it may increase concentration risk beyond what feels comfortable.

The question isn’t whether the DSP is good or bad, the question is whether it supports your broader financial picture.

Unlike existing shares, DSP shares may not be subject to the IPO lockup period, though they would still be subject to company trading policies and blackout restrictions.

That creates an interesting question:

Should your first post-IPO purchase be more SpaceX stock?
Or should your first step after liquidity be diversification?

A thoughtful decision considers not only the opportunity itself, but how it fits into everything else you’re building.

The DSP program puts your money where your mouth is by continuing the question: If you had all your SpaceX value in cash, would you buy all SpaceX with it?

Diversification Is Not a Lack of Confidence

This is perhaps the most important conversation many employees will face.

If you’ve spent years helping build SpaceX, it’s natural to believe deeply in the company’s future.

Belief is not the problem.

Concentration can be.

Your income, career trajectory, future equity grants, vested shares, and unvested shares may already be connected to the same company.

That’s a remarkable opportunity, but it’s also a meaningful source of risk.

Diversification is not a statement about what you think will happen to SpaceX.

It’s a decision about protecting the life you’ve worked so hard to build.

Good business owners understand that concentration and conviction are not the same thing. Sometimes diversification isn’t about reducing belief in the company—it’s about protecting the opportunities that belief has already created.

The IPO Is a Beginning, Not an End

An IPO has the potential to create extraordinary wealth.

The decisions made before and after liquidity often have a greater long-term impact than the IPO price itself.

This is where thoughtful planning becomes invaluable.

Not because anyone can predict the market, but because intentional planning can help create something even more meaningful:

More flexibility.
More choice.
More confidence.

More alignment between your resources and the life you want to live.

At SeedSafe Financial, we help tech professionals navigate equity compensation, concentrated stock positions, tax complexity, IPO transitions, and the opportunities that follow. We partner with our clients to answer many questions, including:

Should you participate in the DSP?
Which shares should you sell first?
How much should you diversify?
Do you need a 10b5-1 plan?
What taxes should you prepare for?

Because the goal isn’t simply to build wealth.

It’s to ensure the wealth you’ve created supports the life you’re creating.

What We’re Watching Closely

As of this writing, there are still several open questions we’re monitoring for clients:

Whether the “up to” language in the current offering materials or S-1 lockup release schedule will ultimately become fixed release percentages
Which employees will be subject to preclearance requirements
Whether exchange funds will be permitted under the final trading policy
How future RSU withholding obligations will be handled if vesting occurs during lockup periods
Whether additional guidance will be released regarding 10b5-1 plans

As these details become clearer, they may impact employee selling strategies and tax planning decisions.

If you liked this post, we suggest reviewing:

Disclaimer: This material is provided for informational and educational purposes only and does not constitute legal, tax, or investment advice. The strategies discussed may not be appropriate for all individuals or situations. Eligibility and suitability depend on your specific circumstances, financial objectives, and current laws, which are subject to change.

SeedSafe Financial, LLC provides tax preparation and planning services for advisory clients; however, this material is for educational purposes only. Transmission of this information does not create a client-preparer relationship. Please consult with your SeedSafe advisor or a qualified tax professional before implementing these strategies.

Employer plan provisions, contribution limits, and benefits may vary by company. Confirm specific plan details directly with your employer or benefits administrator.

Advisory services are offered through SeedSafe Financial, LLC, an SEC-registered investment adviser. Registration with the SEC does not imply a certain level of skill or training.

Trump Accounts: A Practical Guide for Families

From time to time, new financial programs emerge that promise to expand how families save and invest for the future. Recently, we’ve been receiving a number of questions about Trump Accounts, a newly created type of investment account designed for children.

As with many new policies, the details are still evolving. Congress has passed legislation establishing these accounts, but the IRS is currently in the process of drafting the final regulations that will determine exactly how they operate. The information in this post is based on the IRS Notice of Intent to issue regulations under Section 530A and may change as additional guidance is released.

When new financial tools appear, the most important question isn’t simply how they work – it’s how they fit into a thoughtful financial life. In this post, we’ll walk through the structure of Trump Accounts, how they function during childhood and adulthood, and where they may (or may not) fit within a broader financial plan.

We’ll cover:

What a Trump Account is
How the account works during a child’s early years
How the account changes once the child reaches adulthood
When it may make sense to use one

The information discussed here is based on early legislative proposals and preliminary guidance. Final regulations have not yet been issued and the details described below may change.

Trump Accounts: What to Know at a Glance

Trump Accounts are a new investment account for children designed primarily for long-term retirement savings.
The program includes a $1,000 government seed contribution for certain children born between 2025 and 2028.
Contributions during childhood are limited to $5,000 per year, and investments must track low-cost U.S. equity indexes.
Funds generally cannot be withdrawn until the child reaches age 18, after which the account follows rules similar to retirement accounts.
For many families, these accounts are best viewed as a supplemental strategy, rather than a primary savings vehicle.

What is a Trump Account?

A Trump Account is a new investment account created by federal legislation that allows families to save and invest for a child’s future beginning at birth. The account is owned by the child but managed by an adult until age 18, and contributions can be made by parents, employers, and certain government programs. While the account shares some similarities with retirement accounts like IRAs, it is designed as a long-term investment vehicle that begins during childhood and transitions to the child’s control in adulthood.

Trump Accounts: Age 0-17 = Growth Period

A Trump Account’s “Growth Period” kicks off when it’s opened and ends on December 31 the year before the child turns 18.

Ownership

This new account type is an irrevocable account for a child, and it is administered and controlled by an adult until the child turns 18. The adult can:

Select available investments,
Transfer the account to another Trump Account custodian, and
Designate a successor responsible party.

Eligibility

All U.S. children under age 18 with a valid Social Security number (SSN) are eligible for a Trump Account. Only one funded Trump Account is allowed per child. Accounts must be opened and managed by an authorized individual (legal guardian, parent, adult sibling, or grandparent, in that order of priority). To establish an initial Trump Account, the child must:

Be under age 18 at the end of the year (Example: born after December 31, 2008, for a 2026 election).
Have a valid Social Security number issued before the election is made.

Note: The child must have a valid Social Security number issued before the election is made. If the child’s immigration status has changed since the number was issued, families may need to update the Social Security record to ensure eligibility.

Pilot Program: $1,000

The Treasury’s pilot program provides a one-time $1,000 seed contribution for U.S. citizens born between January 1, 2025, and December 31, 2028. Children who aren’t eligible for the seed contribution can still open a Trump Account- they just won’t receive the $1,000 contribution.

To be eligible for the $1,000, the child must:

Be the qualifying child of an individual who anticipates that the child will be his/her qualifying child for the tax year in which the election is made,
Be born after December 31, 2024, and before January 1, 2029,
Not have a prior pilot program contribution election processed for them,
Be a U.S. citizen; and
Must have a Social Security number.

Accounts will not be opened prior to July 5, 2026. Also, there is no date currently on when the $1,000 contribution will be made to the account.

Note: It is possible that the funds run out before the end of the pilot program.

Contributions

Trump Accounts differ from traditional IRAs as it allows contributions from multiple sources and does not require the contributor to have earned income. Contributions must be made within the calendar year. During the Growth Period, the annual contribution limit for this new account type is $5,000 (adjusted for inflation annually starting in 2028).

Contributions subject to the $5,000 total (aggregated together) include:

Individuals contributing after-tax funds,
Employees contributing through their paycheck (waiting on final regulations to see if this is pre-tax and/or after-tax),
Employers contributing $2,500 tax-deductible funds (this is per employee, not per dependent).

Additional contributions not included in the limit:

Pilot program contributions (pre-tax),
Qualified general contributions (funded by states or political subdivisions thereof, the United States, the District of Columbia, Indian tribal governments, or section 501(c)(3) tax-exempt organizations) for members of a qualified class of account beneficiaries,
Qualified rollover contributions: the rollover Trump Account must be funded by a trustee-to-trustee transfer of the entire account balance from the child’s existing Trump Account.

Note: Contributions to this program during the growth period are not included in the child’s income. Also, contributions may be made to a Trump Account and to an IRA that is not a Trump Account for the same child during this period.

Because contributions may include both pre-tax and after-tax components, careful record-keeping may be important when determining the taxable portion of future distributions.

Eligible Investments

A Trump Account can only be invested in “eligible investments”. An eligible investment:

Is a mutual fund or an exchange traded fund (ETF) that tracks an equity index in primarily U.S. companies (defined as 90% in U.S. based companies)
Does not impose fees greater than 0.10%, and
Does not allow leverage.

Distributions

During the Growth Period, NO distributions are allowed from the account, with the exception of

Qualified rollover contributions to a rollover Trump Account,
Qualified ABLE rollover contributions (at age 17),
Distributions of excess contributions, and
Distributions upon death of the account beneficiary (fully taxable in that year).

Trump Accounts: Age 18+ = Treated like an IRA

Once the child turns 18, they’ll have full control of the account, including the ability to manage and use the funds as they see fit.

Ownership

There are several options on how to handle the account after the Growth Period. On January 1 of the year the child turns 18, they could:

Keep the account as a Trump Account which will follow the IRA rules (but you can no longer rollover to a different Trump Account). Trump Accounts are not grouped with IRAs when determining how much of a withdrawal is taxable.
Roll over the balance to a traditional IRA (although, this is dependent on the custodian).
Convert the account into after tax funds.

Note: Under some custodians, Trump Accounts may automatically be rolled over to a Traditional IRA.

Contributions

After the child reaches age 18, contributions to this program may be allowed but the same rules that apply to Traditional IRAs will apply:

Earned income, and
Increased contribution limits.

Note: Trump Accounts cannot receive SEP IRA or SIMPLE IRA contributions.

Eligible Investments

At this point, the contributions and their earnings can now be invested in any asset class that’s allowed for Traditional IRAs.

Distributions

Distributions made after the child reaches the age of 18 will be taxable in a pro rata manner (part after-tax principal, part pre-tax earnings) and a 10% penalty will apply to the earnings portion of any distribution unless:

Over the age of 59 1⁄2 or
One of the following exceptions:
- Funds are to be used for qualified education expenses,
- Up to $10,000 is to be used for a first-time home purchase,
- Funds are to be used for qualified medical expenses,
- Birth or adoption costs (up to $5,000),
- Disability, or
- Terminal illness.

Note: Withdrawals may be taxed at ordinary income rates depending on the tax treatment of the contributions and earnings.

When Would You Use One?

At their core, Trump Accounts are long-term retirement savings accounts for children.

While the idea of beginning retirement savings at birth can sound appealing, thoughtful financial planning usually begins with a different set of priorities. Many families find it helpful to think about savings priorities in stages, such as:

First, secure your own retirement.
Parents protecting their long-term financial independence is one of the greatest gifts they can give their children. Check out our blog on Backdoor Roth contributions to speed up your retirement contributions.
Next, plan for education.
For many families, this is where tools like 529 college savings plans play an important role. Wondering how much to contribute to a 529 plan? Check out our blog post for more info.
Then consider additional long-term wealth building for the next generation.

Because Trump Accounts function primarily as retirement accounts, they generally fall into this third category of planning.

For many households, Trump Accounts may function best as a supplemental tool rather than a primary savings vehicle, depending on goals, eligibility, and plan features.

There may still be situations where opening one is worth exploring. For example:

If your child is eligible for the government’s $1,000 pilot program contribution
• If an employer offers additional contributions through payroll programs

In those cases, receiving outside funding can make the account worthwhile even if you do not plan to contribute significant additional dollars yourself.

However, there are several limitations that mean other accounts are often more effective planning tools. Compared to a 529 plan, Trump Accounts:

Do not offer state tax incentives for contributions
• Have relatively low annual contribution limits
• Restrict withdrawals until age 18
• Do not allow beneficiary changes
• Offer limited investment options
• Tax investment earnings upon withdrawal

For many families, these features may make 529 plans and retirement accounts higher-priority options to evaluate first, depending on goals and eligibility

This chart offers a comparison of various college funding methods.

	Trump Account	529	Brokerage Account (Parent)	Roth IRA (Custodial)
Account Ownership	Child	Parent	Parent	Child
Annual Contribution Limit	-Before Age 18: $5,000 (inflation indexed in 2028) -Can be pre or post tax -$2,500 can come from ER (pre-tax) -After Age 18: Follow IRA rules	-No limit Note: 2026 Gift tax annual exclusion $19,000	None	2026: $7,500, limited to earned income
Accessibility	Low = No access before age 18	Moderate = Qualified Distribution	High = Access at any time	Moderate = Qualified Distribution
Investment Options	Limited Before Age 18: -Index Mutual funds/ETF that are at least 90% in US companies -.10% expense ratio cap -No leverage	Multiple: -Mutual funds -Target date/ Age-based portfolios	Broad: Virtually any asset	Broad: Virtually any asset
Employer Contributions	Yes	No	No	No
State Income Tax Deduction	No	Yes*	No	No
Taxation	-Tax-Deferred* -Capital Gains rate on Qualified Distributions -Potentially Kiddie-Tax	-Tax-Free on Qualified Distributions	-Taxable on Capital Gains	-Tax-Free on Qualified Distributions
Subject to RMD	Yes	No	No	No
Penalty on NQ distributions	10% + Ordinary Income Tax	10% + Ordinary Income Tax	None	10% + Ordinary Income Tax
Earned Income Requirement	No	No	No	Yes
Qualifying Distributions	-Age 59 ½ -Higher Education -1st Home Purchase -Health Expenses	-$20,000/yr for K-12* -Higher Education -Test prep* -$10,000 lifetime limit student loans* -$35,000 lifetime limit Roth IRAs*	None	-Age 59 ½ -Higher Education -1st Home Purchase -Health Expenses
Beneficiary Changes	No	Yes	Yes	No
Impacts on Financial Aid	At Child Level = 20%	At Parent Level = 5.64%	At Parent Level = 5.64%	0% if distributions taken Junior or Senior of college

*Some states

Chart note: This comparison is for general educational purposes only and may not reflect your situation. Eligibility, contribution limits, investment options, taxes, and withdrawal rules vary by account type and are subject to change. Confirm details with official plan documents and current IRS/Treasury guidance before taking action.

How This May Fit Alongside Other Priorities

For many families, this new account type may not be a first-priority savings vehicle, especially before core retirement and education goals are on track.

Some families may consider opening an account if they are eligible for government or employer contributions.
Some families may choose to contribute their own dollars only after other priorities are on track, such as:
- You’re able to take advantage of additional benefits available through an employer program
- You’re making progress toward your own retirement investing goals
- You have a plan for education expenses (often through a 529 plan)

How Do You Open a New Account?

Now that you have all the information. Here’s how you open a new account:

You need to “elect to open” a Trump Account through either filing Form 4547 with your taxes or online at https://trumpaccounts.gov/.
As of right now, it is estimated that accounts will become available July 5, 2026.
The Treasury Department is projected to send information to activate the account starting in May 2026. You will be assigned a financial institution (custodian) who will open your account.
At some point, you will be able to rollover your Trump Account to a new custodian if you desire.

Note: The Treasury Department is responsible for creating and overseeing Trump Accounts. At this time, the account owner will need to track tax treatment of the funds (pre-tax and after-tax portions) for distributions.

Final Thoughts

New financial programs often arrive with excitement, and sometimes confusion. Our role is to help families step back, understand the full picture, and make decisions that truly serve their long-term life goals.

Trump Accounts may become a useful planning tool for some families, particularly as regulations are finalized. But like any financial strategy, the key question isn’t simply “Is this available?”

It’s “Does this support the life we’re trying to build?”

As more guidance emerges, we’ll continue helping our clients evaluate where this account may fit within a thoughtful, values-aligned financial plan.

____________________________________________________________________________

Disclosures: This material is provided for informational and educational purposes only and does not constitute legal, tax, or investment advice. The strategies discussed may not be appropriate for all individuals or situations. Eligibility and suitability depend on your specific circumstances, financial objectives, and current laws, which are subject to change.

Advisory services are offered through SeedSafe Financial, LLC, an SEC-registered investment adviser. Registration with the SEC does not imply a certain level of skill or training.

Backdoor Roth IRA 2025: How It Works, Why to Use it, and Tax Considerations

The Backdoor Roth IRA is a strategy that enables high-income earners to make Roth IRA contributions indirectly when their income exceeds the limits. Why do they care? High earners benefit from high cash savings and a Roth IRA allows a greater contribution towards retirement. Funds in a Roth IRA grow tax-deferred and may be eligible for tax-free distributions in retirement. A Roth IRA can be an effective tax strategy for managing tax brackets in retirement and a legacy planning tool. So how can you benefit from this strategy anyways? Insert -> the Backdoor Roth IRA strategy.

What is the Backdoor Roth IRA?

The Backdoor Roth IRA is a tax strategy that helps high-income earners contribute to a Roth IRA when they’re over the income limits (in 2025, $165,000 for single filers and $246,000 for married couples) by contributing to a traditional IRA and then converting it to a Roth IRA.

First, you make an IRA contribution (up to $7,000 in 2025 for those under 50 years old and $8,000 for those over 50 years old) by April 15th 2026. Then, you can convert this IRA contribution to a Roth IRA. Over time, the Roth IRA compounds and becomes a valuable addition to your retirement savings.

Who Should Consider a Backdoor Roth IRA?

If you are:

Above the income threshold for a Roth IRA contribution
Have extra cash during the year and want to save towards retirement
Are willing to take the steps to set yourself up for a successful Backdoor Roth strategy

When a Backdoor Roth Makes Sense

At SeedSafe Financial, we work with tech professionals who want to get out of the game by their 50s. The Backdoor Roth strategy can be a great way to increase retirement savings.

Many of our tech clients have excess cash from IPOs or large amounts of RSUs – their taxable investments often dwarf retirement savings. This strategy reduces the taxable impact of investing while they are in higher tax brackets.

We also use this for clients who want to leave money to their children when they pass. At this time, a Roth IRA can be passed down to your children with minimal tax impact. For more advanced estate planning, a Roth IRA with a Trust beneficiary can be helpful. Trusts that hold IRAs and Roth IRAs must take distributions on a reduced timeline than if left to children. The Roth IRA reduces the tax impact of the required distributions while still maintaining control over when the kids get the money.

Step by Step: How to Do a Backdoor Roth IRA

*Warning: keep reading below before you follow these instructions for the mistakes to avoid*

The Backdoor Roth IRA strategy is not for the faint of heart – it takes time and diligence to make sure you enact it correctly:

Open a Traditional IRA at your custodian of choice
Make a ‘non-deductible’ IRA contribution for the year
Invest it and wait a bit to convert it
Open a Roth IRA account at the same custodian
Call the custodian and ask to convert the Traditional IRA to the Roth IRA account
Report the conversion on IRS Form 8606
Repeat annually
Keep track of your basis in each the Traditional IRA and Roth IRA in case of future legislative changes

And there you have it! You’ve completed the steps for a Backdoor Roth IRA!

Understanding the Tax Implications

Here comes the tricky part – because there is always a catch when the IRS allows you to do something like this. The Pro-Rata rule.

What is the Pro-Rate Rule?

The Pro-Rata rule in Roth IRA conversions is an additional wrinkle to consider. If you have pre-tax IRA money and non-deductible contributions in one account, the conversion will be partially taxable. An example of pre-tax IRA money is if you rolled a past 401(k) into your IRA.

Why does this happen? You are making a ‘non-deductible’ IRA contribution. A non-deductible IRA contribution means you are over the income limits to be able to deduct this amount on your tax return. So you are making a contribution ‘post-tax’. When you make a ‘post-tax’ contribution, it has a cost basis similar to when you purchase taxable investments. This cost basis in the IRA is not taxable in a conversion. However, anything pre-tax is.

Let’s look at an example: Dave rolled his 401(k) from a past employer to a Traditional IRA in the amount of $500,000. A few years later, Dave decides to start making an annual non-deductible IRA contribution. He forgets to convert it for a few years and now his Traditional IRA is at $600,000 in total with $21,000 in basis from non-deductible IRA contributions. If he decides to convert the $21,000 now, the IRS will tax part of it as income.

($600.000 – $21,000) / $600,000 = 96.5%

96.5% of the $21,000 = $20,265 taxable income in the year of conversion

That was not what we wanted to happen from a tax efficiency standpoint.

So how do you fix this issue? If you are still employed, we often suggest rolling the pre-tax amount back into your 401(k). Then, with just the $21,000 in your Traditional IRA, the result will be very little taxation at conversion.

Disclaimer: This example is hypothetical and provided for illustrative purposes only.

Common Mistakes to Avoid

Based on the above conversation, there are certainly a few mistakes you can easily make:

Having a mix of pre-tax and non-deductible funds in your Traditional IRA account
Forgetting to file the Form 8606 when you make the conversion (to track your non-deductible contributions and basis)
Doing the conversions too quickly and running into the IRS substance test. Aka, if it looks like a Roth IRA contribution and smells like a Roth IRA contribution, it is.
Not tracking your Traditional IRA basis on an ongoing basis with your tax return

Backdoor Roth IRA vs. Mega Backdoor Roth

Is there an easier or better way to do this? Many of our big tech clients at Google, Amazon, Apple, Meta, Microsoft and their portfolio companies have the option of an ‘After-Tax 401(k)’. This is included in their 401(k) company benefits and will show up in the contributions area for the plan.

The After-Tax 401(k) allows you to make a Mega Backdoor Roth Contribution! We detail out this strategy and the benefits on our blog post Is a Mega Backdoor Roth Strategy Worth It? The Mega Backdoor Roth is a Backdoor Roth on steroids – a higher contribution amount and less complication with the pro-rata rules.

Summary FAQs About the Backdoor Roth IRA

Is the Backdoor Roth IRA still legal in 2025?

Yes. The Backdoor Roth IRA remains legal and IRS-approved in 2025. No current legislation has eliminated this strategy for high-income earners.

Who should use a Backdoor Roth IRA?

It’s best for high-income earners who exceed Roth IRA income limits ($165,000 single / $246,000 joint in 2025) but want tax-free retirement growth.

What is the Pro-Rata Rule?

If you hold both pre-tax and after-tax IRA funds, the IRS taxes conversions proportionally. Rolling pre-tax funds into a 401(k) can help avoid extra taxes.

What’s the difference between a Backdoor Roth and a Mega Backdoor Roth?

A Backdoor Roth uses an IRA; a Mega Backdoor Roth uses after-tax 401(k) contributions to convert much larger amounts – up to roughly $70,000 per year. This limit includes your employee contribution (up to $23,500 in 2025) + employer match + after-tax 401(k) = $70,000 max.

Can I do a Backdoor Roth every year?

Yes. As long as conversions are allowed, you can complete a Backdoor Roth annually and track it with Form 8606.

At SeedSafe Financial, we believe wealth isn’t just about saving – it’s about strategy. The Backdoor Roth IRA can be one of the simplest ways to grow tax-free wealth and build a lasting legacy. Ready to see how it fits into your plan? Let’s make your money move with purpose.

Thinking about other year end strategies or going through benefits enrollment? Check out our other blog posts:

Disclaimer:
This guide is provided for informational and educational purposes only and does not constitute legal, tax, or investment advice. The strategies discussed, including the Backdoor Roth IRA, may not be appropriate for all individuals or situations. Eligibility and outcomes depend on many factors, including your personal financial situation and current federal and state tax laws, which are subject to change.

Any examples provided are hypothetical and for illustrative purposes only. They do not represent actual client outcomes, and actual results will vary. You should consult with qualified tax, legal, and financial professionals before taking any action related to Backdoor Roth IRAs or any other tax planning strategies.

When Can You Sell Company Stock? Rule 10b5-1 Plans for Tech Professionals

Just Promoted? Here’s Why You May Face New Limits on Selling Your Stock

If you’ve stepped into a Director or C-suite role at your tech company, you might suddenly face new restrictions on when and how you can sell your equity. These rules aren’t just bureaucratic red tape – they exist to prevent insider trading and uphold market integrity. A 10b5-1 plan may help you in this case.

Understanding trading restrictions and how a Rule 10b5‑1 plan works can help you. Understanding these restrictions can help you discuss options with your legal, tax, and financial advisors to stay compliant and create a thoughtful strategy for managing your equity.

Let’s unpack it together!

What are trading restrictions for tech companies?

Trading restrictions occur to prevent insider trading in public companies. When a tech startup IPOs, there may be a few types of trading restrictions at the start:

Lock-up Period: This generally occurs during the first 6 months of the IPO trading on the stock market. This is meant to prevent employees from selling / ‘dumping’ their shares on the stock market and destabilizing the price. Many banks who help tech startups IPO will make this a stipulation since they assist with supporting a pricing window during this time.

Blackout Period: This restriction applies to employees with access to material, nonpublic information. Generally, this covers the C-Suite, Directors in charge of major P&L items, and many finance team members. The blackout period generally exists some time frame between quarterly earnings calls. This way, the thought is that the quarterly earnings call will allow the public to have the same information as a potential insider. Some key employees may be further restricted.

Technically, the SEC requires employees with >10% ownership in the company to follow these restrictions. However, it is up to the tech company to decide who is a key employee beyond these individuals. You may learn your promotion comes with a few more restrictions!

What is a Rule 10b5-1 Plan and How Does It Work?

A Rule 10b5-1 plan is a concept the SEC came up with to help employees comply with the trading restrictions they impose. The theory is that if an ‘insider’ or key employee states their intentions around stock sales in advance, then the risk of insider trading goes down. This can, can prevent the accusations of insider trading and level the playing field.

The plan will state the types of stock subject to the plan – options, RSUs, or ESPP shares. Then it will ask for other details:

Grant ID
Date Shares Acquired/Vested
Sale Period
Authorized Number of Owned Shares for Sale
Limit Price or Market Price

Then, these details go to the Custodian and Company to approve.

Note: If you do not follow your plan, the protections of the Rule 10b5-1 Plan may no longer apply for ‘insider’ trading.

What Are the Benefits and Risks of a 10b5-1 Plan?

Pros and cons of a 10b5-1 plan may be up for interpretation by each individual 🙂 So let’s talk more about the features of a 10b5-1 plan:

When properly established and followed, a Rule 10b5-1 plan may offer an affirmative defense against insider trading allegations. However, this depends on individual circumstances and adherence to plan requirements
It can allow you to trade throughout the year, instead of waiting for black out periods to end
You are able to potentially diversify out of your company stock in a more consistent manner
It can take the emotions out of the decision to sell. You won’t need to remember how much to sell or worry about the stock price changing during the window you can sell
You will be subject to a cooling off period before, or during termination, of your 10b5–1 plan
If you change your mind and wish to modify or terminate your 10b5-1 plan, you may be subject to more scrutiny and potential allegations

What Is the Cooling-Off Period for a Rule 10b5-1 Plan?

The cooling off period is usually between 30 to 90 days before the 10b5-1 plan takes effect. The cooling off period does not allow you to sell any shares during this time.

The cooling off period also applies if you decide to modify or terminate your 10b5-1 plan. It is important to work with your company to understand your company’s insider-trading policy.

What Should I Ask My Company Before Starting a 10b5-1 Plan?

Key questions you should ask before implementing a 10b5-1 plan include:

Who is allowed to put a 10b5-1 plan in place?
How long does the 10b5-1 plan need to apply? 1 year?
What kind of sales are prohibited as part of the plan?
Am I allowed to modify or terminate the plan during open trading windows?
If I do modify or terminate the plan, what is the waiting/cooling off period before I can trade shares again?
Will my Rule 10b5-1 plan be publicly disclosed?
Once I establish my 10b5-1 plan, can I trade additional shares outside of the plan?

Summary: How a Rule 10b5-1 Plan Helps Insiders Sell Stock Legally

Trading restrictions apply to insiders after IPOs and around earnings
A Rule 10b5-1 plan lets you pre-schedule trades legally
Plans must include key details like timing, share amounts, and prices
You must follow a cooling-off period before trades can begin
Modifications require caution – breaking the plan may void protection

A Guide to QSBS: How Your Startup Exit May Qualify for Federal Tax Savings

Did You Know Part of Your Startup Exit Could Be Tax-Free?

If you’re a founder, early employee, or investor in a high-growth startup, a little-known tax benefit could help you exclude up to $10 million (or more with the OBBBA changes) of capital gains from federal taxes. It’s called the Qualified Small Business Stock (QSBS) exclusion, and for those who qualify, it can mean massive tax savings upon exit.

Let’s break it down – clearly, calmly, and in plain English.

What Is QSBS? (Qualified Small Business Stock)

QSBS is a provision in Section 1202 of the tax code that allows shareholders of certain small businesses to exclude capital gains from federal tax when they sell their stock – if they meet five specific requirements.

Under current rules, you may be able to exclude 100% of your gain, up to $10 million or 10x your original investment (whichever is greater).

Who Qualifies for the QSBS Exemption?

To be eligible for QSBS treatment, you must meet five criteria:

The stock must have been directly acquired via an original issuance from a U.S. C corporation (Sec. 1202(c)(1));
Both before and immediately after stock issuance, the C corporation’s tax basis in gross assets did not exceed $50 million (Sec. 1202(d)(1));
The C corporation and shareholders must consent to supply documentation regarding QSBS (Sec. 1202(d)(1)(C));
The C corporation conducts certain qualified active trades or businesses (Sec. 1202(e)); and
The stock must have been held for 5 or more years (Sec. 1202(b)(2)).

You can find a great cheat sheet put together by Cooley HERE. Please note this is a third-party resource and SeedSafe Financial LLC is not affiliated with Cooley or responsible for the content on their site.

What Changed with the New Law?

The Opportunity to Build Back Better Act (OBBBA) made key changes to QSBS for stock acquired on or after July 5, 2025:

Tiered Holding Period:
- 3 years = 50% gain exclusion
- 4 years = 75% exclusion
- 5 years = 100% exclusion
Cap Increase: The $10M limit rises to $15M, adjusted for inflation starting in 2027
Gross Asset Test Increase: From $50M to $75M, also inflation-adjusted

**Important: If you acquired your stock before July 5, 2025, the original rules still apply.

Understanding your specific exemption requirements is important.

QSBS and Industry Eligibility

Many types of early-stage tech startups qualify under the industry requirement. However, if you’re in FinTech, healthcare, or another excluded industry, the analysis is more nuanced. It’s crucial to confirm with your company and tax advisor whether your stock qualifies.

Federal QSBS Exclusion: By Acquisition Date

Acquisition Period	Percent Exclusion (Regular Tax)	AMT Add-Back
Before Feb 18, 2009	50%	7%
Feb 18, 2009 – Sept 27, 2010	75%	7%
Sept 28, 2010 and later	100%	0%

Note: QSBS gains are taxed at a special 28% rate if not fully excluded. Higher earners should also factor in the 3.8% Net Investment Income Tax (NIIT).

Most sales for higher wage earners will trigger AMT. For AMT purposes, 7% of the excluded gain is added back to taxable income for the computation of stock sold before Sept 28, 2010.

Hopefully, at this point, any stock from pre-2010 has either exited or the company has dissolved so you can take a capital loss on the investment.

QSBS Example: How It Might Work in Practice

Scenario:

You and your spouse earn ~$500,000/year
You sell startup stock acquired in Jan 2019
Gain = $2.5M on $500K basis
You live in California

If QSBS Applies:

$2.5M gain excluded from federal tax
California tax due: ~$307,500
Effective tax rate: ~12.3%

If QSBS Does Not Apply:

Federal tax due: ~$595,000
California tax due: ~$307,500
Effective tax rate: ~36.1%

The difference? Nearly $600,000 in tax savings.

Disclaimer: This example is hypothetical and provided for illustrative purposes only. Your circumstances and results will vary.

What Documentation Do You Need to Claim QSBS?

To successfully claim QSBS treatment and avoid trouble during an audit, gather:

Stock purchase proof (certificates, checks, 83(b) election)
Company confirmation of C Corp status (e.g., IRS Form W-9)
Valuation docs at time of acquisition (especially for founders or early employees)

We strongly recommend working with a qualified tax advisor for the year of the sale.

Most states don’t follow the federal QSBS exclusion, so you may still owe state capital gains tax. California, for instance, does not conform – so plan accordingly.

Summary: QSBS Key Takeaways

You may qualify to exclude up to $10M or more in startup gains from federal taxes
You must meet five IRS criteria—original issuance, asset limit, active business, 5‑year holding, and documentation
New rules phase in for stock acquired July 5, 2025 or later
Most states do not follow federal QSBS rules—keep a reserve
Documentation is critical. Work with a professional to confirm eligibility and file correctly

Hire a tax preparer for the year in question. The simplified example above does not include a discussion of how each state may further tax your business gain. They will also make sure they have the documentation to support the QSBS exclusion on file in case of audit.

At SeedSafe financial, we believe financial clarity isn’t just about minimizing taxes – it’s about creating space to live well, align your wealth with what matters, and move forward with confidence.

If you’re navigating an exit—or want help understanding whether your shares may qualify for QSBS—we’re here to help you explore your options. We collaborate with your tax and legal professionals to support you with precision and care.

Navigating IPOs and Incentive Stock Options (ISOs)

If your company is preparing for an Initial Public Offering (IPO), it’s an exciting time—especially if you hold Incentive Stock Options (ISOs). But before you rush to exercise those options, there are crucial considerations that could make or break your financial strategy.

What are Incentive Stock Options (ISOs)?

Incentive Stock Options are a type of employee stock option that comes with potential tax benefits, making them an attractive component of your compensation. They allow you to buy company stock at a set “exercise price,” typically the market value at the time of the grant. The options become exercisable according to a vesting schedule, which usually spans four years, and they come with an expiration date by which you must take action.

If you don’t exercise your ISOs by the expiration date, they expire and are worthless. Generally, you have up to 10 years if you’re still employed, but if you’ve left the company, this window can shrink to as little as 90 days or sooner if your company is nearing an IPO.

Dig out that options agreement to confirm how your ISOs are treated with an IPO! Some sample language can be found in the Reddit stock agreement.

ISOs, if managed properly, may only be taxed at the more favorable long-term capital gains rate. However, you must hold your shares for at least one year after exercising and two years after the grant date. Meeting these requirements means the sale of your ISOs will qualify for long-term capital gains tax, which could result in a significant tax savings compared to ordinary income tax rates.

What are Non-Qualified Stock Options (NQSOs)?

Before diving into the IPO conversation, let’s quickly break down how ISOs differ from Non-Qualified Stock Options (NQSOs).

NQSOs are generally given early on in a startup’s trajectory, to advisors, or as additional incentives as employees reach the ISO limit.

With NQSOs, you’ll pay taxes at the time of exercise, recognizing ordinary income on the difference between the stock’s value and your exercise price. This is a big difference from ISOs, which may be eligible for long term capital gains treatment at their sale.

However, ISOs come with limitations. You can only vest up to $100,000 in value of ISOs in a given calendar year to enjoy this tax benefit. Anything over this amount is treated as NQSOs.

Check your stock portal to see if this ‘ISO/NQSO split’ is occurring over your vesting period. Often, this will happen more in the later years of vesting as the stock value quickly rises.

— Do you learn better from audio or video? Check out this conversation on our YouTube video about this topic HERE —

Be Aware of the AMT Trap

Even though ISOs offer appealing tax treatment, they come with a catch: the Alternative Minimum Tax (AMT). AMT is a parallel tax system that kicks in when certain “preference items,” like ISOs, push your tax liability higher.

The AMT system has only two tax rates, 26% and 28%, and a larger exemption rate (as of 2024). You only see AMT on your tax return if your AMT tax due is larger than your regular tax due.

When you exercise your ISOs, the difference between the stock’s current value and your exercise price (known as the bargain element) is included in your AMT calculation. If you’re exercising a small number of options, you might not notice the impact. However, if you exercise a large number of options, the AMT can take a big bite out of your finances.

For example, we’ve seen AMT taxes due soar to $250,000 or more on ISO larger exercises. So, before you exercise, make sure you have a tax professional in your corner to help you navigate the complexities.

The IPO Opportunity: Timing Your ISO Exercise

So, why exercise ISOs ahead of an IPO?

An IPO creates a liquid market for your company’s stock. By exercising your ISOs pre-IPO, you could lock in a lower stock price and start the clock on your long-term capital gains tax treatment.

However, the stock price could fluctuate dramatically after the IPO, making this a risky move if you expect an IPO soon. NASDAQ research from April 2021 showed that while 34% of IPOs gained over 10% in their first year, more than 50% lost 10% or more.

If your company is eyeing an IPO within the next 18-24 months, now might be a good time to assess how much cash you can afford to put at risk. Exercising a portion of your ISOs each year could help you spread out the AMT cost and mitigate some risk if the IPO is delayed. We like to call this ‘laddering’ our exercises (and potential sales) to minimize taxes across the board.

Not sure if an IPO is in your future? Check out our blog post on when to consider exercising stock options as a pre-IPO company here.

Case Study: Jane’s ISO Strategy

Let’s consider a real-world example. Jane, a long-term employee at a tech startup, is weighing her options ahead of the company’s IPO.

Jane received two ISO grants:

10,000 shares at $0.10 per share, which she exercised early with an 83(b) election.
10,000 shares at $3.00 per share, which she hasn’t yet exercised due to the cost to acquire them ($30,000).

With her company’s IPO on the horizon, Jane and her advisor reviewed her financial situation to determine how much cash she could comfortably invest in exercising her ISOs.

After accounting for her emergency savings and other expenses, she decided to allocate $10,000 toward her stock options.

Together, they calculated the potential AMT liability based on the current 409A valuation and the expected IPO price. By exercising some ISOs before the IPO this year and planning to sell RSUs after the IPO, they managed the risk while maximizing the tax benefits.

The Takeaway: Make an Informed Decision

Exercising ISOs ahead of an IPO can be a smart move, but it requires careful planning. Be sure to evaluate your financial situation, risk tolerance, and tax implications before making any decisions. Working with a financial advisor and tax professional can help ensure you navigate this complex process successfully.

If you’re considering exercising your ISOs before an IPO, weigh the risks, rewards, and your financial goals carefully. With the right strategy, you can maximize your wealth while minimizing unnecessary taxes.

Looking for a Financial Partner in your IPO journey? Schedule a call with us to learn more.

The above discussion is for informational purposes only. Recommendations are of a general nature, not based on knowledge of any individual’s specific needs or circumstances, and there is no intent to provide individual investment advisory, supervisory or management services.

What is the maximum 529 contribution? Should I fully fund it?

What is the maximum 529 contribution? This question can actually mean two separate things.

What is the annual maximum contribution I can make before gift taxes apply?
What is the maximum contribution I can make in total to my 529 plan?
What should I fund for a 529 plan for my child(ren)?

Let’s break these questions down…

Annual Maximum 529 Contribution

When you hear ‘maximum 529 plan contribution’, this usually refers to the annual gift tax exclusion. A 529 contribution is considered a gift to another person (i.e. your child). Gifts to other individuals above a certain threshold are taxable events in the United States.

For the 2024 tax year, gift taxes may apply for gifts above $18,000 per individual (or $36,000 for married couples filing jointly).

This applies to 529 contributions as well. You can contribute up to $18,000 each year, per child, without having to pay gift tax as of 2024. This amount can change annually based on inflation.

On the flip side, 529 contributions may earn you a tax deduction or tax credit in certain states. Generally, to obtain the tax deduction or credit, you must use the 529 plan designated by the state. The benefit can range from $80 to $1,200+ in a reduction of state taxes. Find out whether your state offers a benefit HERE.

If you are willing to file a Gift Tax Return (Form 709), you can stretch this contribution even further in a year.

The 5-Year Election for 529 Contributions

If you are going through an IPO or a large liquidation event in one year, you may decide to make a ‘5 year election’ to superfund your 529 plan.

This means you can contribute up to $90,000 per individual (or $180,000 for married couples filing jointly) to a 529 plan in a year. The catch is you cannot make further contributions to the 529 plan in the following 4 years and you must file a Gift Tax Return.

The benefit of making the 5 year election is mostly around time. You fund the 529 plan now and allow more time for the investments to grow. This can be a great way to ‘set it and forget it’.

Total Maximum Contribution to a 529 Plan

So if I can technically make a 529 plan contribution each year up to $36,000 for married filing jointly couples and I start the day my child is born, I could actually put in $648,000 by the time they graduate from high school???

Nope!

529 plan total contribution limits range from $269,000 to $570,000, depending on the state. This limit really boils down to what the state believes is a good estimate for attending school. North Dakota believes this to be $269,000 while Utah says this is $560,000.

Where you open your 529 plan should account for tax benefits, plan costs, investment choices, and how much you plan to contribute to it.

Funding a 529 plan for your child

Whether or not you should fund your 529 account to the max depends on a number of factors, including your income, your savings goals, and your child’s age. Here are some things to consider:

Your income: If you are in a low tax bracket and expect to stay there, you may be eligible for financial aid through the FAFSA process. Get to know the components of how your ‘expected family contribution’ (EFC) is calculated to know how much would be expected of you in today’s dollars. If you are in a higher tax bracket or you’ve accumulated $2 million+ in investments, you will need to pay for the majority of your child’s college expenses.
Your savings goals: Prioritize retirement savings and high-interest rate debt first. Put your own oxygen mask on first before helping a child! Then, if you feel comfortable you are on track financially, then consider what 529 contributions you can make.
Your child’s age: If your child is young, you have more time to allow the 529 contribution to grow. This may mean a few years of maximum annual contributions will go a long way. However, if your child is older, you may need to contribute each year in order to save enough money. If your child is already in high school, you may want to consider whether a 529 plan is still the best option for you.
Your child’s college plans: If your child is likely to attend a state school, you may not need to save as much as if they are planning to attend a private school. This is because state schools are typically less expensive than private schools.

The 529 conundrum

The best time to fund a 529 plan is when your child is still under age 3 for the largest potential growth… but you should only fund it based on what kind of college you expect them to attend… What does that mean I should do?

Ultimately, the decision of how much to contribute to your 529 account is a personal one. There is no right or wrong answer.

At SeedSafe Financial, we make sure our clients are on track financially. Then, we balance retirement dreams, expense expectations, and the desire to set their family up for success. This means each family may have a different plan:

some may contribute $36,000 for a few years and stop,
others may contribute $8,000 a year until high school,
and a few will make a 5 year election and superfund a 529 plan to the max

The important piece of this is to know what you can afford to do that doesn’t put your own long term safety at risk.

Why should I consider contributing the total maximum to a 529 plan?

If you are in a good place financially, making $1M+ a year, or have a net worth of $10M+, there is a case to consider contributing the total maximum allowed.

It’s called the ‘multigenerational’ 529 plan strategy (or Dynasty 529 plan).

This is where you use a single 529 plan account to support education for multiple individuals. You start by creating the plan for your child and contribute up to the maximum $560,000 over the first 15 years.

Then, you utilize the funds for college expenses for your child (as intended). However, there will most likely be quite a bit left as the investments continue to grow. What happens to this ‘leftover’ money?

The IRS allows for a beneficiary of a 529 plan to be changed to “a member of the family” of the beneficiary. This means you could change the beneficiary from your child to your grandchild in the future.

The goal is for the investments to continue to grow over long periods of time – allowing the gains to compound. Then, when each future generation goes to college, they are able to use those gains and continue the line of funding. This feels like magic.

And with all magic, the IRS wants to know it isn’t being abused. Changing the beneficiary may still trigger the gift tax rules (remember those from the beginning of the article?). However, another 5-year election or part of the lifetime gift exclusion could be used to help offset this tax cost. (Work with your tax advisor to make sure this is correctly reported).

That is a lot to think about.

Remember how I said there is no right or wrong answer? Consider your individual circumstances and make the decision that is best for you and your family.

Some tips we suggest for all 529 plans:

Start early: The sooner you start saving, the more time your money has to grow in the account. Even if you can only contribute a small amount each month, it will add up over time.
Set up a regular contribution schedule: One of the best ways to save for college is to set up a regular contribution schedule. This will help you stay on track and reach your savings goal. You may decide to use ESPP funds on a quarterly basis, RSUs as they vest, or from your paycheck. Whatever method you choose, make it consistent.
Take advantage of gifts: Let family know you’ve set up the 529 plan and send them a gift link. You may be pleasantly surprised at who all wants to help fund your child’s education 🙂
Get professional advice: If you are not sure how much to contribute or which type of 529 plan is right for you, be sure to get professional advice from a financial advisor.

If you don’t have a financial advisor, consider scheduling some time to chat with us.

Did you enjoy this article and are looking for other ways to set your child up for financial success? Check out our blog post HERE.

Is a Mega Backdoor Roth Strategy Worth it?

If you’ve joined the tech industry in the last 5 years, you’ve seen a huge adoption of the ‘after-tax 401(k)’. The after-tax 401(k) is an employee benefit that allows you to put more money away for retirement and implement the Mega Backdoor Roth strategy. We see this often available for our clients at larger tech companies like Amazon, Google, and Microsoft.

There are many articles on what a Mega Backdoor Roth is, but fewer that explain why you should do it and how to do it.

If you’re considering whether this strategy is worth it for you, below is a detailed look at what it is, the benefits, and potential pitfalls.

What is a Mega Backdoor Roth IRA?

First, a quick breakdown of how the Mega Backdoor Roth strategy works. Essentially, it’s a way to convert after-tax 401(k) contributions into a Roth IRA. Here’s how it works:

In your 401(k) portal you will have the option to contribute pre-tax, Roth, and/or after-tax. Contributions to pre-tax or Roth are the usual ‘employee contribution’ we’ve seen available in 401(k) plans for a long time. For these contributions, the maximum total amount you can add to it is $23,000 in 2024 (or $30,500 if you are age 50 or older). An additional benefit is the after-tax 401(k) contribution.
After-Tax Contributions: The limit on after-tax 401(k) contributions is up to the overall 401(k) limit of $69,000 (or $76,500 if you’re 50 or older).
Maximum After-Tax Contributions: This varies from employer to employer. The overall 401(k) limit applies to how much you can contribute. The overall limit includes your regular employee contribution, your employer contribution, and any after-tax 401(k) contribution. This means how much your employer contributes may change the total amount you can set aside in the after-tax 401(k).
In-Plan Roth Conversion or In-Service Withdrawal: These after-tax contributions can be converted to a Roth 401(k) or rolled over to a Roth IRA. Once rolled to a Roth and invested, they can grow tax-free. However, this is usually an election you need to make within your 401(k) portal. I’ve seen this missed by employees at Google, Amazon, etc where they thought selecting the after-tax 401(k) option was all they needed to do. Don’t forget to click that ‘Convert to Roth’ button 🙂

Benefits of a Mega Backdoor Roth IRA

Tax-Free Growth: Once the funds are converted from the After-Tax 401(k) to a Roth account, they grow tax-free. This can add significant tax savings, especially if you have a long investment horizon before you take distributions.
High Contribution Limits: The ability to contribute up to the overall 401(k) limit generally means you can put $40,000+ towards the strategy. This is far beyond the regular Roth IRA limits of $7,000 (or $8,000 if you’re 50 or older).
Flexibility in Withdrawals: Your Roth IRA does not have a ‘required minimum distribution’ (RMD) during your life. This means more flexibility in retirement planning.
Inheritance Planning: With the new inherited IRA rules post-2020, all assets in the Roth IRA must be distributed within 10 years following the original owner’s death (or 5 years for beneficiaries that are trusts and other situations). This means if you have a large IRA balance at death, then your beneficiary may recognize more income over those 10 years. This can result in a higher tax bill. If you leave a large Roth IRA balance at death, then this new rule won’t impact taxes since distributions are tax-free.
Tax Diversification: A mix of tax-deferred, taxable, and tax-free retirement accounts can provide greater flexibility around taxes in retirement.
High Income Earners: The Roth IRA income limit is $240,000 for married joint filers (or $161,000 for single taxpayers). This strategy gives you an opportunity to still put money towards Roth accounts.

Considerations and Potential Drawbacks

While the mega backdoor Roth IRA has considerable advantages, it’s not without potential downsides:

Cash Flow: Don’t put the cart before the horse – if you don’t have the buffer in cash flow to enact this strategy things can go sideways fast. It’s not worth racking up credit card debt to be doing ‘all the cool hacks’. Get your spending plan right first.
Savings Strategy: Don’t forget to prioritize 401(k) employee contributions and HSA contributions first. (Interested in why we say look at HSAs first? Find out more here.) If you are healthy and have excess cash flow, there are even greater benefits to looking at these first. There is certainly a priority list in how to consider your employee benefits
Complexity: You need to make sure you track conversions on your tax return through the years. Maintaining IRA and Roth IRA basis in your workpapers may be vital if changes in the tax code occur. If any gains happen between the after-tax 401(k) contribution and the conversion to the Roth IRA, you will receive a Form 1099-R to add to your tax return.
Immediate Tax Impact: The conversion of after-tax contributions to a Roth account can have immediate tax consequences on any earnings from the after-tax contributions. This is why clicking the button to allow in-plan conversions is vital!

Is It Worth It?

The decision to use a mega backdoor Roth IRA strategy depends on several factors:

Your Financial Goals: If your goal is to maximize tax-free growth and you have the means to contribute significant amounts to your retirement savings, this strategy can be highly beneficial.
Early Retirement: If your goal is to get out of the 9-to-5 game by age 50 or you are still working on financial flexibility, this may not be the time to lean in. Make sure you are focusing on the right mix of investment vehicles that will get you there. Locking up every-last-dollar into retirement accounts may not be for you.
Plan Features: This strategy works best when the after-tax 401(k) allows for in-service withdrawals to minimize the tax bite.
Current and Future Tax Brackets: Consider your current tax bracket versus your expected tax bracket in retirement. If you expect to be in a higher tax bracket later, paying taxes now on conversions may be a good idea. For our California clients, many need a $5 to $10 million investment portfolio to fully lean into financial independence. This means their future tax bracket on investment income will have a huge impact.
Comfort with Complexity: This strategy requires a solid understanding of tax rules and reporting on your tax return. If you’re comfortable with these aspects or have a financial advisor to guide you, it can be a worthwhile endeavor.

Conclusion

The mega backdoor Roth IRA is a powerful tool for those looking to significantly boost their retirement savings and benefit from tax-free growth. However, it’s not suitable for everyone.

Make sure you know how to enact the full strategy
Review your finances to know where it fits in your spending/saving plan and long term goals
Consider bringing in an expert to help you decide what will help you reach financial flexibility faster and give you a roadmap to financial independence

If you are still on the hunt for the right financial advisor for you, schedule some time with us to see how we can help grow your wealth. Find out more about our team here.

Preparing for the Reddit IPO as an employee (or ex-employee)

The Reddit IPO is here! What does that mean for you as a Reddit employee?
Prepare for what is coming:
When can you do something with your stock?
How should you prepare before the Reddit IPO?
What should you consider at Reddit’s IPO?
What does it really mean for you post-IPO?

Category: Investing & Tax Planning

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Phase 1: SpaceX IPO Launch

Phase 2: First Liquidity Window (performance based)

Phase 3: Gradual Release Period (time based)

Phase 4: Major Liquidity Release

Phase 5: Final Release

Discipline Often Matters More Than Timing

Every Liquidity Window Is an Opportunity to Reassess

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Trump Accounts: Age 0-17 = Growth Period

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Distributions

Trump Accounts: Age 18+ = Treated like an IRA

Ownership

Contributions

Eligible Investments

Distributions

When Would You Use One?

How This May Fit Alongside Other Priorities

How Do You Open a New Account?

Final Thoughts

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What Should I Ask My Company Before Starting a 10b5-1 Plan?

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Annual Maximum 529 Contribution

The 5-Year Election for 529 Contributions

Total Maximum Contribution to a 529 Plan

Funding a 529 plan for your child

The 529 conundrum

Why should I consider contributing the total maximum to a 529 plan?

That is a lot to think about.

What is a Mega Backdoor Roth IRA?

Benefits of a Mega Backdoor Roth IRA

Considerations and Potential Drawbacks

Is It Worth It?

Conclusion