What Can You Do With Your Employee Stock Options When You Leave A Company?

• Employee stock options often expire 90 days after your termination date
• Knowing your plan’s rules around exercising vested stock options is a critical step when changing employers
• Moving from one company to another means giving up unvested employee stock options
• Diligent financial planning helps make the most of their equity compensation packages, so no options are forfeited

So many things can get lost in the shuffle when you move from one job to another. When changing employers, you must have a smooth transition of benefits, so you don’t expose yourself and your family to risk. Also critical is having a strategy with your employee stock options (ESOs). Your employment status and the type of ESOs you own impact the rules surrounding what you can do with the options.

What to Consider Before You Leave Your Job

1. Review plan documents.?Knowing your company’s rules around stock options is imperative. Check your firm’s plan documents to know the window you have to?exercise?and how different circumstances for leaving might impact that timeline. You generally have up to three months, or 90 days, from your termination date to exercise your vested options if you separate from your company voluntarily, decide to?retire early,?accept a job at a different company, or just take a break from work.
2. Special situations.?Suppose your original expiration date is?after?you terminate employment but before the end of the 90-day post-termination exercise window; you will need to exercise by the original expiration date to capture the ESOs’ value. You can think of that period as a “now-or-never” proposition. The last thing you want is to let the options fall through the cracks and accidentally allow them to expire. If you are leaving due to disability, your timeline to exercise is usually longer.
3. Know your termination date and future exercise deadline.?It’s also important to consider that if your company gives you one year from your termination date to exercise your?incentive?stock options?(ISOs), you must exercise them within the 90-day post-termination period so that they retain their status as ISOs.
4. A new employer.?In negotiations with a new firm, consider any equity left on the table at your former job as part of your compensation package. Forfeited stock options are like an opportunity cost. With the new company, don’t hesitate to ask for equal or greater equity, a higher salary, or perhaps a sign-on bonus.
5. An eye on taxes.?Be sure to take advantage of your 90-day exercise window if it is between Nov. 1 of one year and Jan. 31 of the next – you may be able to spread income over two calendar years, which can lessen your overall tax bill. At Archer, we’ve worked with clients to execute strategies whereby options are exercised early to capture tax benefits so that not all options exercise in one tax year.

The Ground Rules of ESOs When You Leave Your Job

Options can be lucrative, but they also feature expiration dates, so the rules and details might seem tricky. Here at Archer, we specialize in helping busy professionals navigate the complexities of?equity compensation?packages, so they know all the benefits available to them.

Part of our planning process includes executing optimal ESO strategies. An option’s expiration date is simply the last day you can exercise the option. We find that it’s usually 10 years from the grant date, but each company’s plan has its own rules.

DANGER:?If you neglect to exercise ESOs by the expiration date, your options become worthless. Forfeiting potentially valuable options is not part of a good financial plan! We’ve seen this happen with workers even while they are still employed. If this blog had a soundtrack, this is where the scary music would hit.

Importantly, as we hinted earlier, if you depart from your company, you must exercise the ESOs by the earlier of (1) the stated expiration date or (2) the new expiration period set in the plan document for a terminated employee.

Timing Your Exit: Vesting, “In-the-Money” Options, Extending Your Stay

Companies commonly have seemingly elaborate vesting schedules so that workers are incentivized to stay put. Hence, unvested options remain unvested post-termination. This situation is another planning opportunity that can save you a significant sum of cash.

“In-the-money” is a technical term you should know. Basically, if your options’ strike price is below the fair market value (FMV) of the stock, then you could have a significant asset on your balance sheet. If the ESOs are unvested, however, then they are not yours yet. An approaching vesting date might make it a wiser move to remain employed at your original job a bit longer so that you don’t forfeit those unvested options. This, too, is financial planning!

The bottom line: Timing your exit could save you hundreds of thousands of dollars. Strategically timing when you depart from your company can have a substantial impact on your net worth and path toward financial freedom.

Different Rules for Termination Due to Death or Disability

More time is given to individuals separating from an employer due to disability. It’s common to have a one-year exercise window for your vested options rather than just 90 days as you might for voluntarily leaving.

The same usually goes for ISOs. More time is allowed, which means we have more planning and strategy opportunities during what is almost always a stressful time for the individual and their family. That’s also a circumstance when working with an advisor is particularly helpful so you can focus on your loved ones while we tackle?financial issues.

The exercise window for stock options is sometimes longer for someone who passes away, as well. It might be one year, but once again, checking with the employer is often required to know for sure.

Importantly, most plans allow a worker to name a beneficiary on the ESO account. Like with other financial accounts, that person can act on your behalf upon your passing. Be sure they know what to do should the unfortunate event occur. They will have the right to exercise, sell the options, or receive shares themselves. The executor of an estate, or personal representative, can also help in that event.

The Bottom Line

Busy professionals at growing companies must know about their employer’s stock option plan rules before leaving for a new firm. There are often financial planning opportunities that can save you big money. Not going about the process strategically can be costly.

At Archer, our mission is to get you on the fastest track toward financial freedom. Making the most of your employee stock options ensures you stay on the best path.

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NOTE: This website is not an offer or solicitation in any jurisdiction in which the firm is not registered. The information presented is for educational purposes only. It should not be considered specific tax or investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. All investments involve risk. Past results do not guarantee future performance. There is no guarantee that any investment will return a particular performance result or a better performance result over another investment option.