Key Questions Every Executive Should Ask About Their Equity Compensation, Deferred Comp, and Tax Strategy
Understand your vesting schedule and how it aligns with your overall tax picture. Many executives default to selling RSUs at vest without considering the tax implications of timing.
Consider whether a 10b5-1 trading plan makes sense for your situation. These pre-arranged plans can help you diversify systematically while avoiding insider trading concerns.
Evaluate the concentration risk in your portfolio. If more than 10-15% of your net worth is tied to a single stock, you may need a deliberate diversification strategy.
Coordinate RSU vesting events with other income sources. A year with a large bonus and significant RSU vesting could push you into a higher tax bracket unnecessarily.
Key Question: Do you know exactly how much of your net worth is concentrated in your employer's stock, and do you have a written plan to manage that concentration?
Assess your risk tolerance for holding a concentrated position. The upside potential must be weighed against the downside risk of a significant decline.
Explore hedging strategies such as protective puts, collars, or exchange funds that can reduce risk while potentially deferring capital gains.
Consider charitable giving strategies using appreciated stock. Donating shares directly to a donor-advised fund can eliminate capital gains while providing a full fair market value deduction.
Evaluate whether a Section 1042 exchange or other tax-advantaged exit strategies apply to your situation.
Key Question: If your company's stock dropped 40% tomorrow, how would that impact your family's financial plan and lifestyle?
Review your deferred compensation plan elections annually. Once made, NQDC elections are generally irrevocable for that plan year.
Understand the distribution triggers and timing for your deferred comp. A separation from service, change in control, or specified date each have different tax implications.
Coordinate your supplemental executive retirement plan (SERP) with your overall retirement income strategy.
Review your executive life insurance and disability coverage. Group plans often have caps that leave high earners significantly underinsured.
Key Question: Have you modeled what happens to your deferred compensation if you leave your employer before retirement age?
Project your income across 3-5 years to identify opportunities for income shifting. Years with lower income may be ideal for Roth conversions or exercising ISOs.
Understand the impact of the Alternative Minimum Tax (AMT) on your stock options. ISO exercises can trigger AMT liability even before you sell the shares.
Evaluate whether bunching charitable deductions into alternating years makes sense given the standard deduction thresholds.
Consider state tax planning if you have flexibility in where you work. Remote work policies may create opportunities for state tax optimization.
Key Question: Do you have a forward-looking tax projection that accounts for your equity compensation events over the next 3-5 years?
Gather your most recent equity compensation statements, including RSU vesting schedules, stock option grants, and deferred compensation plan summaries.
Review your last two years of tax returns to understand your effective tax rate and identify any patterns.
List all employer-provided benefits and their current elections.
Schedule a discovery call with 12 Stones Capital Partners to discuss how these pieces fit together in a comprehensive plan.
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This playbook is for educational purposes only and does not constitute financial, tax, or legal advice. Consult with qualified professionals before making financial decisions. 12 Stones Capital Partners provides financial planning and wealth management services. Investment advisory and financial planning services offered through qualified registered representatives of MML Investors Services, LLC. Member SIPC.
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