Category: Tech Leader

Are you moving up the corporate ladder and looking for financial strategies? These articles prepare you for higher level tax planning and ways to use your stock compensation to your advantage.

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.

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.

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.

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.

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

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.

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.

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.

Startup Job Offer Demystified: What You Need to Know

Negotiating your startup job offer is no walk in the park. Joining a startup can be an exciting career move, offering opportunities for growth, ownership, and potentially life-changing financial rewards. But startup compensation often includes complex components like equity and accelerated vesting provisions. To help you navigate this process, we’ve created a comprehensive guide to ensure you secure a package that aligns with your worth and goals.

Breaking Down a Typical Startup Job Offer

Before diving into negotiation tactics, it’s important to understand the components of a startup offer. Here’s what you can expect:

Base Salary: The fixed, regular paycheck—often lower than market rates at mature companies.
Equity: This can include stock options, Double Trigger RSUs (Restricted Stock Units), or other forms of ownership in the company.
Bonuses: May be performance-based or tied to company milestones.
Benefits: Healthcare, retirement plans, and other perks like flexible work arrangements.

Understanding the value and trade-offs of these components is the first step to negotiating effectively.

Why Equity Matters

The equity piece of your startup job offer is often the most crucial—and the least transparent. It represents your potential share in the company’s success. Here’s why it’s important and how to evaluate it:

Understand the 409A Valuation: Ask when the company’s last 409A valuation was completed. This determines the fair market value of the company’s shares and impacts your equity’s potential AMT impact.
Assess the Company’s Runway: How much cash does the company have, and how long can it operate without additional funding?
Determine the Exit Strategy: Is the company aiming for an IPO or acquisition? Knowing this helps you understand the perceived timeline and potential payout of your illiquid equity.
Negotiate Accelerated Vesting: For director-level or higher roles, request accelerated vesting provisions. This ensures your unvested equity can vest early if the company is sold or goes public during your tenure.

Questions to Ask the Company

To feel confident in your decision, ask these critical questions during the negotiation process:

When was the last 409A valuation done? Will a new valuation be required for your shares?
How much runway does the company have? A longer runway indicates greater financial stability.
How close are you to raising the next round of funding? Learn how the funds will be used and what this means for the company’s growth.
Are you targeting an IPO or an acquisition? Who are the potential buyers, and what’s the expected timeline?
What kind of accelerated vesting provisions are available? This can significantly impact your total compensation in the event of an exit.

Reflecting on Your Own Goals

Negotiating a startup job offer isn’t just about the company’s future—it’s about yours, too. Ask yourself these questions:

What’s driving you to consider this position? Career growth, financial gain, or working on a meaningful product?
What does your ideal work-life balance look like? Startups are often demanding. Are you prepared for the intensity?
What’s your risk tolerance? Early-stage startups carry more financial uncertainty, so weigh the trade-offs.
Do you have a plan for your equity? Whether it’s stock options or RSUs, know how you’ll manage them to maximize value.
Can you afford to exercise stock options? Low salaries can make it harder to cover the upfront costs of exercising options and paying associated taxes.

Pro Tips for Negotiation Success

Do Your Research: Use resources like Levels.fyi and H1BData.info to benchmark your role’s compensation.
Focus on Equity Details: Clarify vesting schedules, exercise windows, and potential dilution from future funding rounds.
Plan for the Long Game: For more liquid compensation, consider mature startups nearing IPO or offering regular employee buyouts.
Understand Your Financial Needs: Know your annual expenses and savings goals to balance risk and reward.

Final Thoughts

Negotiating a startup job offer is a vital step in your career journey. By understanding the components of your offer, asking the right questions, and reflecting on your personal goals, you’ll be better equipped to make a decision that aligns with your financial future.

If you’re considering a startup role, take the time to prepare and advocate for yourself. The right offer can set the foundation for both professional growth and long-term wealth.

Looking for more tips on navigating startup compensation and building wealth? Explore our other posts and subscribe to our newsletter for insights tailored to equity-compensated employees. Together, we’ll help you go forth and grow your wealth!

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.

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.

Year End Planning and Setting Intentions for 2024

Each year we reflect on what went well for the year, what could be better, and how we will improve in the following year. Some of the reflections are financial, some are based on improving quality of life, and others are around giving back to the community.

In my reflection this year, my heart is full of gratitude for the lives we touched at SeedSafe Financial. We partnered with our clients to stay the course towards better finances in 2023, and that’s a big deal to me!

Although 2023 did not include the start of a pandemic, or fumbling through what that means in a ‘new world’, the year had its own challenges. Rising interest rates, layoffs, and a stumbling stock market felt heavy at times and caused many to pause and ask the questions:

How long will this last?

Does this change big financial decisions I want to make?

Where do we go from here?

Each year I hear these questions asked in year end meetings and it reminds me that life is full of unpredictable changes that will test our resolve. The best way to stay the course is through a long term vision, reviewing plans, and creating priorities on an ongoing basis.

Build a long term vision of life

What is your most fulfilling life? What are you doing in your most fulfilled life? How are you feeling? Where do you lean towards in this life?

We often skip right over our life vision and the purpose of money. We may go straight to financial tactics: reading up on investment and tax strategies or the ‘top 5 things to do’. We forget – money is a tool to facilitate a meaningful life.

Money may mean different things to different people – comfort, security, freedom, anxiety. It’s how we use money towards our life vision that makes an outsized impact.

Changes happen every year and our vision can lead us through it. Your vision of your life should be your anchor and color all decisions (financial or not) that come your way.

With a vision of your life and the values you want to lean into, the next step is building financial flexibility towards that vision.

Knowing my long term vision of life, how do I feel about last year?

Work and life ebb and flow – some years you will have more time and energy to focus and some years less energy.

Review your time and energy over the last year. What gave you more energy? What took away energy? How can you bring more energy to your life?

An enlightening exercise, The Wheel of Life, reviews major areas of a fulfilled life and asks you to assess how you are doing in those areas. This can help you think more about what needs attention and time in the coming year and longer term.

As humans, we can (too) easily find ways we want to improve our lives. Sometimes this is for ourselves, but sometimes it is what we ‘think’ we need to be happy. Too often we can end up on the hamster-wheel of life. Few on their deathbed wish they had more money.

One caregiver wrote about the experience of working with those towards the end of life and the regrets they had. In The Top Five Regrets of the Dying, Bronnie Ware writes about the regrets:

1) “I wish I’d had the courage to live a life true to myself, not the life others expected of me.”

2) “I wish I hadn’t worked so hard.”

3) “I wish I’d had the courage to express my feelings.”

4) “I wish I had stayed in touch with my friends.”

5) “I wish I had let myself be happier”

It takes time and energy to live a life true to yourself, surrounded by those you love, and free from the ‘keeping up with the Jones’ attitude.

Where can I lean into this year?

Now that you have your long term vision, reviewed last year and identified where you want to grow towards…what could possibly get in the way? 🙂

What can you make a priority this year? How will you make it a priority? Creating SMART goals rears its head again! If you only have so much time and energy, then how you use it will make the biggest difference.

What can you remove from life that keeps you from a fulfilling life?

What can you lean into towards your most fulfilled life?

Considering your time

Each year I review my calendar and rate the activities and events I was part of. What got me closer to my most fulfilled life? What took away from it?

Knowing this, what can I do now to make next year even better? It may include blocking out more days for creative work or scheduling out friend gatherings. I love to host board game nights so I am penciling in those nights now.

Considering your energy

I am by nature an over-doer. I want to do ‘all the things’ and find energy from a jam packed life, but even I have my limits. What helps build your energy? What takes away from it?

Are there activities that ‘must be done’? Who else can do them?

Often I find our clients come to us because they know finances are important, but finances just are not on their priority list in life…and that’s okay!

If money is stressful, anxiety inducing or just ‘not fun’, why would you put more energy into it? This may be an ideal place to begin to outsource and have a thinking partner that helps with money decisions.

The same may go for cleaning your home or cooking. If you don’t enjoy it and you could use that time towards a more fulfilling life, then what can be done to reduce these activities? For some, this may be buying a smaller home, reducing material things, or hiring a cleaning service.

For those who don’t have time to cook or have no desire to, it may mean hiring a meal prep service or buying ‘ready made’ frozen meals.

Each of us are individuals that deserve to be happier, healthier, and living our most fulfilled life.

If you go through the exercise of envisioning your most fulfilled life and find finances are something you want to change, please schedule a chat with us.

We wish you a beautiful holiday season!

What Happens to my Stock in an Acquisition?

Tech professionals have such an interesting life from a stock perspective. You work hard to understand your offer letter, these weird stock things, and what that means from a tax perspective. The fun doesn’t end there – now an acquisition turns your beautiful plans into reality!

What happens to your stock in an acquisition depends on a few things.

The kind of acquisition it is
The structure of your company
What kinds of stock and/or options you have vested

Types of Acquisitions

Acquisition Type – LLC or Partnership

These can be quite a bit trickier. An LLC or partnership may be acquired for their stock or for the assets within the LLC/partnership.

If the LLC / Partnership is acquired by an ‘asset sale’, then your next K-1 will show the character of those gains. This may include: capital gains, ordinary income, interest income, debt cancellation, etc. It may be harder to estimate the impact of the sale. We recommend reaching out to your tax advisor for more information in this situation.

Acquisition Type – C Corps

Let’s say Company X is going to buy Company Y.

Company X will offer a ‘purchase price’ and this can be made up of a few components:

Cash,
Company X stock, and/or
Promissory notes

Depending upon the offer components, this will trickle down in what you personally receive for stock held.

Retention bonuses or retention stock grants will be made to individual star performers. The goal is to retain employees to ensure a smoother transition into owning Company Y.

Many executives find themselves terminated in the acquisition, so review your original contract for an acceleration clause. Does this sound new to you? If so, then we recommend negotiating this in your next compensation package. Find out more here.

What happens if I own stock in a company that gets bought out?

When you own stock in a company, stock certificates will be exchanged for either cash, cash and stock, or stock. It doesn’t matter if the stock is acquired through vesting RSUs or exercising stock options.

Most of the Big Tech companies tend to purchase startups for all cash. Smaller tech companies, who are acquiring another company for technology or market share, may not have the cash to put down. In those cases, a cash and stock purchase makes more sense.

Generally, the timeline goes like this:

Your company notifies you of the acquisition
You parse through legalese to understand if it is a cash purchase, stock and cash purchase, or other type of purchase
There will be an estimated closing date announced where the majority of the transfer will occur (generally within 6 months)
You will be subject to an ‘escrow’ where a certain % of your stock is held until all expenses are settled (within one to two years)

If you acquired the stock long ago, this is the time to review whether you meet the Qualified Small Business Stock exclusion. Read our blog post about it here.

If you exercised options in the last year, you will want to understand what that means for you tax-wise. One of the down sides of exercising ISOs is when you decide to take on a big AMT tax bill in hopes that the price will rise. Only, you find out your company will be acquired less than a year later. In that case, you have a big AMT credit and not a high chance of recouping it. Whomp whomp.

Any cash received will be considered a ‘sale of your shares’ and taxable at the time of the acquisition.

Stock and cash received for your company stock will be taxable to the extent cash was received.

A stock for stock transaction means your original basis and purchase date continues on. This will be portioned between the new amount of shares received by the acquiring company.

Clear as mud? Then it’s time to schedule an introductory meeting with us so we can chat through your particular situation.

What happens to my stock options in an acquisition?

Your stock options may go through a similar process, but on the original vesting timeline.

If you hold vested stock options, the company may pay out cash for these or provide you with a new grant in the acquiring company.

Once the acquisition is announced, you will no longer be allowed to exercise stock options. So if you see a lot of closed doors and people you don’t know coming into the office, that may be a sign to ask what’s up and consider your options 🙂

What happens to my future vesting schedule?

If you have unvested stock options or RSUs, these will move to either future cash payouts or new grants of the acquiring company stock.

You may also receive a retention bonus or retention stock grant as a way to motivate you to remain with the acquiring company for 2 additional years.

Should I sell my stock after acquisition?

If your company is acquired for stock, and it is priced very well, consider selling a large chunk. Many announced acquisitions bring the speculation of a beautiful future together and help buoy the stock price.

Most likely, if your company is being acquired, you had a lot of illiquid shares that were more ‘paper money’ than real money. Now is the time to make the most of the opportunity. Prepare for your future by investing in the stock market and considering your options for furthering your community.

Depending on the type of sale, you may have a great opportunity to do some gifting and charitable contributions with stock to minimize taxes.

Congratulations on your acquisition! If you need any help, please schedule some time to chat with us. 🙂

What to do with stock options at termination

Stock options (ISOs or NQSOs) generally expire 10 years from the date of grant. This makes sense most of the time as the majority of startups aim to go public or exit within that time frame. What we don’t think about is what happens to stock options at termination.

This isn’t the only time you may be wondering what to do. Stock options add to the fun at:

Termination
Expiration and the company is still private
Massive stock growth since grant

This post will discuss what to do with stock options at termination – when you are looking at leaving your job and moving on to the next opportunity.

Expiring Stock Options at Termination

In the recent month, big vests are occurring for many tech companies and tech professionals seem to be reconsidering where they want to be. Add on ‘The Great Resignation’, and your new ideal may be totally different than what you previously thought possible.

When you terminate your position, you generally have 60 to 90 days to exercise vested stock options. Your choices will be different depending on whether you are at a public company or privately held company.

For a Public Tech Company

Stock options in a public company have the value of being liquid due to an exchange you can easily trade them on. You can choose to exercise and hold, exercise and sell a bit later, or do a cashless exercise.

Since you are no longer an ‘insider’ any trading windows would no longer be applicable for future sales.

This is far less complex.

For a Pre-Exit Tech Company

This is far more difficult. If you haven’t exercised options before, you may be sitting on quite a bit of value and the company may or may not allow you to engage in a secondary market sale.

On the one hand, if you exercise your expiring stock options now, the stock will become ‘paper money’. ‘Paper money’ is basically stock in name that is highly illiquid with no known value in between. If the options are NQSOs, you will be paying tax on the value between the 409(a) and the exercise price as if you received that in cash. Ouch.

On the other hand, if the company does well, then the stock may grow to give you a huge payoff.

What to do?? This is a high risk, high value trade-off in the startup cycle. How much cash out of pocket are you willing to lose? Since this is a bit of a crap-shoot on when it becomes liquid and if it turns into something, we keep the cash in hand trade-off front and center.

Some tech professionals consider a loan to exercise the shares. Firms like ESO may offer liquidity now for a piece of the shares at exit. If you are considering this, read the fine print in the deal and consider your ‘cash out of pocket’ as what they could come to you for if it doesn’t turn out as hoped.

If the company allows a secondary market sale, it may be a bit easier. You will be able to exercise/sell some to offset the exercise and hold of others (if that makes sense based on your financial situation). In this situation, we do like to do both around the same time so that you have a ‘known’ market value for the Form 3921 (exercise of stock options). Otherwise, if another sale occurs closer to your exercise, your stock price may jump up and cause you to pay even more AMT. Always consult your tax accountant or CPA when making this decision.

Another Option to Keep in Mind

Do the above ideas sound too risky to you right now? There may be one final option for stock options at termination. Over the last few years this became more and more common – negotiating for a new stock option grant.

Companies like AirBnB and WeWork who saw some turmoil in the moments leading up to an exit were kind enough to recognize:

You worked hard for the company with a promise of stock as part of your ‘compensation’
You should not have to stay at the company to finally get that value
They may be able to get a longer transition period from you at leaving

In this current down market, many tech professionals are jumping to perceived safety in another job. If you are negotiating to leave your job, bring up the above points and asking for a revised stock option agreement. I am making a bit of an assumption – that you were critical to the success of the company over your lengthy tenure so you have the leverage. 🙂

If you have ISOs, they will most likely be forced to become NQSOs due to the IRS rules around total value. For ISOs or NQSOs, the strike price will become the most current value (so higher). The deal won’t be totally equivalent to your prior grant, but it does allow you to participate in some of the growth longer term with no immediate downside.

A little catch in this – the new stock agreement will show the strike price at the current market value. This may also mean that granted ISOs may not be able to meet the ‘$100K in value’ rule and your new agreement could be NQSOs only.

So if you do have some cash you’d like to put towards your stock options at termination, you may want to exercise some ISOs before bringing this negotiation tactic to the table.

There are so many options (pun intended) when you are looking at leaving your company. I hope that you look forward to a better position that aligns with your values and allows you to grow. As always, consider each opportunity to lean into your ideal financial life with care and try not to overextend yourself. Mistakes in stock option calculations can be so costly and disheartening.

If you are struggling with these decisions and how they fit into your financial life, please reach out to us to schedule an introductory chat. Our passion in life is to help guide and partner with our clients for a better financial future that allows you to live into your values.

Tender Offer Basics

During a ‘down time’ in the economy, many companies may turn to tender offers to satisfy grumbling employees who expected an IPO. Other private companies may provide tender offers as the company becomes more mature and stable. This is generally in the later stage of the tech life cycle.

Tender Offers are a funny animal. Each company may do this a little differently. Generally, a funding round with an institutional investor will allow this. Then, it depends on the amount the investor will allow to go to a tender offer vs be invested in the business.

This creates a ‘cap’ of how much employees can sell in shares or options. Usually, we see this at around 20% of shares/options owned or $X (could range from $50,000 to $1M).

The majority of tender offers look at all share types equally. So if you own ISOs, NQSOs, or actual shares, you will be able to determine what mix of those will get you to the total 20% of shares available to tender.

How do you decide what to tender in an offer?

Each type of option (or actual stock owned) provides a different pro/con list of how to think about what to tender.

Things to consider:

For shares you own, are any on their way to being eligible for the QSBS exclusion?

Which options are above water (tender price > strike price)?

What liquidity do I need for the next few years? Do I have enough cash or investments I can pull from at this point?

What liquidity would I like to have for the next few years? Maybe you are working towards a new goal that could use a little extra funding

Do I plan on moving on soon to a new company? If so, then options will expire within 60 to 90 days of termination and will require a big cash outlay to exercise any (potentially)

For ISOs, if you exercise and sell immediately, they become compensation income and are treated like exercising NQSOs

Submitting your Tender Offer request

The company will need to confirm whether you can actually tender the full amount requested. There is always the possibility that a tender offer is ‘oversubscribed’ with more demand than expected. If this happens, the company will reduce the total amount of shares or options you can ultimately tender.

Once the tender offer is complete, review your next pay stub / the summary document you receive from the transaction.

Depending on the shares or options you tendered, the amount of tax withheld through the tender offer may not be enough to cover your total tax bill.

Please make sure you make an estimated tax payment on what you expect to owe in the future. It’s never fun to realize you are short on cash once the tax return is finally prepared.

Use the Tender Offer to Augment your Life

I hope you get to use a tender offer to lean into your values. There is nothing like putting a little more money away towards financial independence, buffering your cash cushion, or helping your community and family towards a better future.

7 Rookie Mistakes Even Your Boss Makes at Benefits Enrollment Time…

Benefits Enrollment season… that lovely time of year where you have less than a month to get your life together (what changed from prior year?) and still meet all your big year end work deadlines.

Side note: This is one of the things I feel like Amazon did right by having a non-year end enrollment period 🙂

There are probably 1000s of blog posts on benefits enrollment topics, but sifting through them means you might miss something big. So instead of restating details on what each benefit means, I’m giving you the short twitter headline and a link to a great blog explaining the topic.

HSAs

Do you have positive cash flow? Maxing out your 401(k)? Contribute to an HSA.

Have an HSA? Not using it much? Look at investing part of it to make the most of the tax deferral!

https://youngandtheinvested.com/what-is-hsa/

Dependent Care FSAs

Are your kids no longer at daycare? What about after school care or summer camps? Might be eligible for this pre-tax benefit.

https://www.fsafeds.com/explore/dcfsa

ESPPs

A forced savings mechanism and a ‘guaranteed’ discount means automatic after-tax value in your pocket.

https://blog.wealthfront.com/good-espp-no-brainer/

Exec Deferred Comp

Okay, I lied, this one is going to be longer than a Twitter headline…

Most of our executives have a ridiculous amount of stock vesting each year through RSUs and NQSOs. Many are uncomfortable with the tax hit they would take for diversifying their risk. Most deferred compensation plans come with more investment options. Therefore, some executives can use this to defer 75% of their salary and bonus, then use NQSO exercises/sales to fund their annual expenses. Thus getting out of a concentrated position and into a more diversified investment strategy.

Using your deferred stock plan might be a great way to diversify out of your NQSO concentrated position. However, it isn’t a fool proof decision. Unless you work at a mega employer that has made commitments to keep these funds as legally safe for you as possible, it may end up not so great.

https://www.nytimes.com/2017/06/30/your-money/should-you-take-advantage-of-a-deferred-compensation-plan.html

Supplemental Life Insurance

Do you need life insurance to cover debts and family needs? If you are young and fit, there may be a better alternative. Check the pitfalls and benefits.

https://20somethingfinance.com/should-you-buy-supplemental-life-insurance-through-your-employer/

Critical Illness Insurance

Are you approaching your 50s and not in the best of shape? If heart problems or cancer runs in the family, this may be a great deal for you.

https://www.thebalance.com/what-is-critical-illness-insurance-4588339

Pet Insurance

This is the time I really wish my dogs could talk. X-rays, blood tests, oh my! We love our pets but hate the vet bills.

https://www.usnews.com/insurance/pet-insurance/what-is-pet-insurance

May the odds be forever in your favor…

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