| I have fully vested stock options - HELP! :-) |
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socalguy
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Joined: 07 Nov 2014
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| I have fully vested stock options - HELP! :-) |
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My wife and I are late 50's. No debt other than our mortgage. We have a large percentage or our total "wealth" in stock options and RSU's from her employer. The stock has grown to the point that we are wondering how to should handle this situation.
Regarding her options, we have currently almost 900K fully vested. We know we need to cash some of this out to diversify but where would you put it? I was told on another forum to split this up between 2014 and 2015 to minimize the tax hit. I just don't know where to park this money for now.
We have an appt with a fee only planner but any plan will not be constructed until almost years end which is why I'm asking here.
Thanks!
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Fri Nov 07, 2014 7:29 pm |
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oldguy
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It's fairly dangerous to hold such a high % of your NW in a high risk product
And from your wording, I'm guessing that you are actually risk averse - and this snuck up on you?
I'm older than you - so I've moved farther from wealth - building & into wealth - preservation. I use the SP500 Index & a Bond fund (4 yr duration). Both are with the Vanguard no load fund company.
My current mix is 50%/50% . The SP500 has a longterm average of 11%/yr - the bond fund has about a 5%/yr return. So the 50/50 mix returns about 8% (the average of 11 &  . You can adjust the mix to add risk, or to lower risk
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Fri Nov 07, 2014 8:40 pm |
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socalguy
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Thanks for your reply! And you are correct about risk aversion. We've been pretty heavily invested in equities, we're getting to a point where we realize we need to really diversify more.
And yes, the stock of her company has really gone up steadily and rapidly over the past few years.
But (stupid me), what I didn't even realize was that her options are not something we can just exercise and put into some other vehicle. To avoid paying regular income tax on them, we need to exercise and then HOLD onto the stock for a year to qualify for long term cap gains tax.
I'll be seeing what our future financial guy has us do but this has been a learning process for sure. Thanks again!
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Fri Nov 07, 2014 8:47 pm |
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oldguy
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quote:
To avoid paying regular income tax on them, we need to exercise and then HOLD onto the stock for a year to qualify for long term cap gains tax.
Yes. But be careful not to let the tax-tail wag the dog. After a years, you will pay the 20% tax on profit (above the strike, your basis). Or, if you sell before the one-year period, your tax will be 'ordinary', 28% up to 30%. However if the price happens to fall during that one-yr-wait, you might lose more than you would by paying 'ordinary' rather than waiting for 20% - you might want to do some of both, half and half?
(Above, I meant the average of 11% and 5% = 8%, don't know where the smiley came from)
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Fri Nov 07, 2014 9:12 pm |
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socalguy
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Pont taken. In fact, over the weekend I was thinking just the same thing. Gladwe're for sure going to see the financial guy asap.
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Mon Nov 10, 2014 4:16 pm |
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GregFromTexas
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Yes definitely talk to an accountant (not an investment adviser or your companies HR person, your own tax expert). The sooner you exercise the better as it will start the clock on long term gains. I THINK that clock only starts when you exercise your shares. In fact you might decide to exercise, then not sell any for a year if that's how it turns out. depends partly on the plan.
The difference between income taxes in a single year on $900K and long term capital gains on $900K will be in the 6 figures.
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Wed Nov 12, 2014 7:21 pm |
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