Financial Planning: Advanced Strategies
Articles (Jump to FAQs)
Alan B. Ungar
NEW! One of the most vexing investment decisions you will ever make involves when to exercise your stock options and when to sell the shares. This article series will give you the tools for determining that time.
Alan B. Ungar
NEW! Deciding which stock options to exercise and when can pose a dilemma. Part 2 of this series focuses on reducing risk when you exercise. Quantifying a risk/return number can determine the point when holding your options is no longer desirable.
Tim Kochis
Once your stock options vest, you need a strategy to maximize their wealth-building value. But no single strategy fits everyone. This article discusses various approaches to planning your option exercises.
Tim Kochis
Part 1 looked at the basic exercise strategy for optionholders but underlined several exceptions to the rule. This article considers reasons and strategies for diversifying away from a concentrated position in your company's stock.
Bruce Brumberg
myStockOptions.com
This PowerPoint presentation (in PDF) provides financial and wealth advisors with an overview of trends in equity compensation grants that can affect your clients and your practice. Details include the features and taxation of restricted stock grants and other types of emerging equity grants, such as performance shares and stock appreciation rights; and topics related to financial planning for restricted stock and Rule 10b5-1 trading plans. Please allow up to a minute for the presentation to fully appear in your browser. (To view the file, you need the Adobe Acrobat Reader, which you can
obtain free.)
Carol Cantrell
Once you reach your retirement year, the decision landscape and timeframe change. To avoid unpleasant surprises, understand what will happen to your stock grants and other company benefits so that you can develop appropriate strategies.
Carol Cantrell
Tax planning for retirees can be more challenging that it was during their working years. You need to constantly monitor any options and company stock holdings as part of your overall portfolio. Part 3 looks at special issues that can arise after you retire, including Social Security; coordinating with required minimum distributions for IRAs and your 401(k); moving to another state; and the gifting of stock.
Samuel D. Swisher
When should you exercise nonqualified stock options? You need a decision-making process that removes guesswork and emotions. Otherwise, you're likely to exercise too soon or too late.
Tom Davison and Liam Hurley
Right after you have completed your taxes is a great time to do your big-picture financial planning. You can more accurately project your income and likely tax situation for the remainder of this year and the next, including AMT risk and capital-loss carry-forwards, to develop your strategy. At the end of the year, review your analysis and strategy again.
Kaye A. Thomas
UPDATED! The refundable AMT credit will be a boon to many taxpayers, especially those who encountered disaster with incentive stock options during the tech stock collapse that began in 2000. Some people are in for unpleasant surprises, though.
Bruce Brumberg
Employee stock purchase plans (ESPPs) are changing in many ways, largely in response to accounting rules. For Part 2, myStockOptions.com asked financial and wealth advisors what they are recommending to clients about ESPP participation.
Michael Beriss
Question the urge to exercise your options to pocket quick profits: exercising too early is a common and big mistake.
Richard Friedman
Careful planning can help you maximize the value of restricted stock and RSUs. Part 2 covers financial, estate, and retirement planning.
Tom Davison
Now that you understand the risks of choosing to be taxed at grant with a Section 83(b) election, should you do it? Part 3 takes you through the analysis.
Tom Davison
Vesting is another crucial time for making decisions about your restricted stock. Decisions include what tax-withholding method to use, whether you should hold or sell the stock, and what account to keep the shares or cash in after vesting.
W.E.B. Bantling and Michael Beriss
UPDATED! Every year, in February, after the W-2s and 1099s have arrived, we get tax-planning calls. Of course, by then it's too late. The time for tax planning is before the year ends.
Tom Davison and Liam Hurley
Your tax return can help you develop your stock option strategy. With your return in hand, make projections for your income, taxes, AMT risk, and use of capital-loss carry-forwards. Next, review the details of your stock plan documents to develop an exercise program.
Marla Brill
Financial Advisor, 5/04
Even the best financial advisors struggle with developing stock-option strategies and mastering the complicated tax rules. Deciding when to exercise can lead to tradeoffs between diversification and tax planning.
Neil Weinberg
Forbes, 4/29/02
Be careful of exotic tax-saving strategies and using margin loans to fund option exercises. What may work in a bull market can be disastrous when stock prices drop. (Access to this archived article requires payment.)
Russ Banham
Journal of Accountancy, 10/01
Although stock options are no longer perceived as the quick path to riches, they still can be a powerful wealthbuilder when you avoid tax catastrophes. In order to maximize their value, don't be blissfully ignorant of the perils of stock options.
Maureen Nevin Duffy
Journal of Accountancy, 8/01
Investors who ignore history are doomed to repeat it. Although this article is not devoted to stock options, it discusses the advantages of an exercise-and-hold approach and diversification in down markets.
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FAQs (Jump to articles)
A number of tax law provisions and interpretations that may affect your stock grants occur in the wide-ranging American Jobs Creation Act of 2004 (AJCA); the final regulations on deferred compensation under Section 409A (issued on April 10, 2007), which adopt the proposed regulations (published on October 4, 2005), as amended; and a series of notices from the IRS, beginning with Notice 2005-1...
The outcome depends on how well your company's stock price does in the years after the grant date and on the ratio of stock options to restricted shares, among other factors. To calculate whether the appreciation of stock option gains equals or exceeds restricted stock gains, you need to...
Let's look at the various tax permutations for nonqualified stock options (NQSOs)...
Some type of periodic exercise-and-sell strategy can help even out stock-price volatility, spread out your tax bill, and eliminate...
The traditional strategy with NQSOs recommends waiting till...
A capital-loss carry-forward from the past year is first used to offset capital gains from stock sales this year, dollar for dollar, up to the full amount of the carry-forward. For example, if you are holding appreciated company stock from a nonqualified stock option exercise or restricted stock vesting, you will be taxed on any capital gains when you sell it...
Deferral means delaying the standard tax treatment that would normally occur when you receive income or undertake a specific transaction, such as...
Estimated-tax periods end on the last days of March, May, August, and December, with payments due by the 15th (or the next business day) of the following month. If you are paying estimated taxes, one strategy is that just after the start of an estimated-tax period you can...
Several strategies exist. But you should speak with a financial advisor, accountant, or tax lawyer when you believe an ISO exercise and hold will trigger AMT...
Once you know you will probably pay AMT, many of your normal tax-planning activities are reversed. For example...
A concentrated stock position occurs when a significant chunk of your net worth is tied up in a single stock. Strategies for hedging, diversification, and liquidity include...
SEC Rule 10b5-1 provides a defense against charges of insider trading if you later trade stock while you know confidential, important information about your company. A Rule 10b5-1 trading plan is a program for the preset purchase and/or sale of your stock that meets the requirements of this SEC rule, including the need to...
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