![]() ![]() Underwater options don’t have current intrinsic value, and it wouldn't make sense to exercise an underwater option, because you could acquire those shares in the open market at a lower price. If, however, the stock price in this example fell to $20 a share, your option would be "underwater." An option is underwater if the current stock price is lower than the strike price. If you exercised them and immediately sold the shares at $35, you'd enjoy a pretax profit of $10,000. If the stock is currently trading at $35 a share, your options would be $10 a share in the money. Say, hypothetically, you have the option to buy 1,000 shares of your employer's stock at $25 a share. ![]() Typically, there is a vesting period of 3 to 4 years, and you may have up to 10 years in which to exercise your options to buy the stock.Ī stock option is considered "in the money" when the underlying stock is trading above the strike price. Read Equity Compensation: Tax Treatment Guidelines (PDF) Mistake #4: Not knowing the "in the money" factors affecting option valueĪ stock option grant provides an opportunity to buy a predetermined number of shares of your company stock at a pre-established price, known as the exercise, grant, or strike price. Tip: It's important to understand when these taxes are triggered, and when tax withholding (if any) applies. In most cases, equity awards will result in ordinary income tax liability when you gain control of shares, and capital gains taxes if you sell shares at a profit. Mistake #3: Neglecting the potential impact of taxes on your awards and the sale of stockįor many people, the ability to maximize their equity compensation benefits can be affected by tax considerations. Contact HR for details on your stock grants before you leave your employer, or if your company merges with another company. If your company is being acquired, you could see accelerated vestings, new awards in the newly formed company, or even a cash payout of outstanding awards. While you may receive a severance package that lasts 6 months or more, do not confuse the terms of that package with the expiration date on your stock options.Ĭorporate mergers and spinoffs can cause changes in your awards. In most cases, vesting stops when you terminate.įor stock options, under most plan rules, you will have no more than 3 months to exercise any vested stock options when you terminate. ![]() Understanding when your awards vest may help you time a resignation. When you leave your employer, whether it's due to a new job, a layoff, or retirement, it's important not to leave your stock grants behind. Mistake #2: Not knowing the stock plan rules when you leave the company Talk with your advisor about your specific awards to ensure you haven't missed something important. There's a lot to learn so take some time to read about how different equity awards work on the Fidelity Stock Plan Resource Center. It's one thing to know what stock and grants you've been awarded, but do you understand how these awards work? Are you familiar with your vesting schedules? Expiration dates? Payout rules? Separation rules? Blackout periods? These awards can represent a significant part of your total compensation-and should be taken into consideration as you build your overall financial plan. Mistake #1: Not taking the time to understand what you haveĮquity-based long-term equity incentives come in a number of shapes and sizes, and depending on what you have, you may need to take different action. To help ensure that you maximize your stock benefits, avoid making these 6 common mistakes: For example, the proceeds you generate from selling shares of company stock might be used to maximize contributions to your employer-sponsored retirement plan, pay down debt, make a college tuition payment, or simply diversify your investment holdings. ![]() No matter your level of compensation, it's important to see how all aspects of your financial picture fit together, both short and long term. This can be a great opportunity to build potential financial wealth. If your portfolio is highly concentrated in a single stock, rather than in a diversified portfolio, you risk exposure to excess volatility.Ĭongratulations, you've been awarded equity compensation as part of your overall pay, bonus, and employee benefits package.Partner with your advisor to incorporate your equity compensation as part of your overall financial plan.Understand what types of equity grants you have and know important dates and deadlines. ![]()
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