Quiz Close the quiz

Test Your Knowledge: Life Events Quiz
Major life events give you enough to think about when they're occurring. Learn beforehand what would happen to valuable stock compensation, whether stock options, restricted stock, or an ESPP. Test your knowledge of equity comp topics in retirement, divorce, disability, death, college funding, and other personal events. Please answer the following 12 questions. This quiz is also a course of study. The answer key links to content on the topic for follow-up reading.

Skip the quiz and view the answers

1. Your company gives you 90 days from your retirement date to exercise your stock options, but your option term expires in 60 days. How long to you have to exercise?
60 days, as the option term overrides the post-retirement exercise period
90 days, as the post-retirement exercise period overrides the option term
60 days for nonqualified stock options, but 90 days for incentive stock options
You cannot exercise vested stock options after you retire
 
 
2. If your restricted stock vesting will automatically accelerate when you become eligible for retirement at your company, what must you watch out for?
The alternative minimum tax
This may be your last chance to defer your compensation to a later date
Your restricted stock may be taxed because of the acceleration upon retirement eligibility, even if you don't retire and keep working
IRS rules will turn the restricted stock into restricted stock units, with unfavorable tax consequences
 
 
3. Can you contribute your company stock to your IRA?
Yes, doing so avoids capital gains tax on the eventual proceeds
Yes, but you have to pay capital gains tax on the net value of the shares at the time of contribution
No, but you can sell company shares to the IRA for cash
No, all contributions to your IRA must be in cash
 
 
4. Can you use company stock in your 401(k) plan to exercise stock options?
Yes, in a stock-swap exercise
Yes, in a net options exercse
No, as your 401(k) plan trustee holds the legal title to the shares
No, but only because of accounting problems this would raise for companies
 
 
5. Does participating in an ESPP affect your ability to contribute to a 401(k) plan?
Your ESPP contributions lower the amount of salary used to calculate 401(k) contributions
Your ESPP contributions raise the amount of salary used to calculate 401(k) contributions
Participating in an ESPP has no effect on your 401(k) participation
The tax laws require your 401(k) contributions to pause during the ESPP purchase period
 
 
6. If you have started taking Social Security payments, do you still have to pay Social Security and Medicare tax on stock compensation?
Only if you are under the age of 70
You pay Social Security and Medicare taxes on all wage and self-employment earnings up to the yearly income limit, regardless of your age or retirement status
No, you are exempt from social taxes after you start receiving Social Security
In that situation, you pay Medicare tax but no Social Security tax
 
 
7. Who pays income taxes after restricted stock is transferred in a divorce settlement?
The employee-spouse pays income tax on the grant value at the time of transfer, and later the nonemployee-spouse pays tax at vesting
There is no tax at the time of transfer, and the employee-spouse always pays income tax at vesting
In the divorce property settlement, usually the nonemployee-spouse pays tax on the value at the time of transfer and no tax applies at vesting
Usually no tax applies at the time of transfer and the nonemployee-spouse pays tax at vesting
 
 
8. What happens to your stock grants if you become temporarily disabled and cannot work?
This depends entirely on your company's stock plan, which may continue or pause vesting
This depends entirely on your company's stock plan, though usually vesting is accelerated to the date of disability
During a disability leave, vesting always stops until you return to active working status
During a disability leave, vesting is required by law to continue normally
 
 
9. What is the most common period that companies give an employee's beneficiaries for stock option exercises after the employee's death?
90 days or the end of the option term, whichever occurs sooner
12 months or the end of the option term, whichever occurs sooner
12 months, regardless of the option term
By law, no time limit can apply to a beneficiary's option exercises, as it may take a long time for a beneficiary to be designated after the employee's death
 
 
10. What are the income tax consequences if your estate or beneficiary exercises nonqualified stock options after your death?
The exercise spread at exercise is taxable to the estate or beneficiary at ordinary income tax rates, with a step-up in basis
The exercise spread at exercise is taxable to the estate or beneficiary at ordinary income tax rates, with no step-up in basis
No income tax applies until the later sale of the shares
No income tax applies at exercise, only capital gains at sale
 
 
11. What are the federal income tax consequences when an estate or beneficiary sells stock previously received from stock compensation by a now deceased employee?
The estate or beneficiary is taxed on the full amount of the appreciation in the stock between the dates of acquisition and sale
The estate or beneficiary is taxed on the 50% of the amount of the stock's appreciation between the dates of acquisition and sale
The estate or beneficiary will receive a step-up in the basis so that no tax applies to any appreciation that occurred after the employee's death
The estate or beneficiary will receive a step-up in the basis so that no capital gains tax applies to any appreciation that occurred before the employee's death
 
 
12. What is the kiddie tax?
Investment income over a specified amount received by children under a specified age is taxed at their parents' higher rate
Investment income under a specified amount received by parents over a specified age can be taxed at their children's lower tax rate
Young people under the age of 18 (or 24 if providing more than half their own income) are eligible for a special 5% tax rate on capital gains
A tax break available to parents with more than one child enrolled in college in a tax year
 
 
Comments on this quiz? Email editors@mystockoptions.com

Customize This Quiz For Your Company

All of our quizzes are also available through our custom stock plan sites and as part of our content licensing to companies. We can even customize our quizzes to fit your stock plans. This makes the quizzes a useful tool for education and communications when you award new grants, switch from options to restricted stock, or near a major vesting date. For details of our corporate services and licensing, email sales@mystockoptions.com.

Continuing Education Credits For CEPs And CFPs

The myStockOptions.com Learning Center has courses and exams offering continuing education credits for Certified Equity Professionals and Certified Financial Planners. Each course features articles, FAQs, and podcasts, woven into an interactive learning tool that teaches the topics in a memorable way. The answer key for each exam also links to relevant content on myStockOptions.com for further reading and learning.


Home | My Records | My Tools | My Library
Tax Center | Global Tax | Newsletter | Glossary | Discussion | About Us
Corporate Customization | Licensing | Sponsorships | User Agreement | Privacy | Sitemap
The content is provided as an educational resource. myStockOptions.com shall not be liable for any errors or delays in the content, or any actions taken in reliance thereon.

Copyright © 2000-2014 myStockPlan.com, Inc. United States Patent 7,353,200.
myStockOptions.com is a federally registered trademark. Please do not copy or excerpt this information
without the express permission of myStockOptions.com. Contact editors@mystockoptions.com for licensing information.