William* never set out to make $1 million, but the value of his Restricted Stock Awards (RSAs) reached that threshold last Thursday, shortly after the technology firm he works for went public. When the grant was awarded in 2013 (one year before the start of five-year vesting), his buddy in the finance office told him to file an 83(b) election. With the 83(b) election, he accelerated payment of ordinary income tax on the 2013-value of the award at $5,000. It cost a few thousand then, but now, all the appreciation from that point forward will be long-term capital gains.
He’s had competing spending priorities for his sales compensation of $150,000 and his wife’s salary as an analyst, which is $80,000. As many people do in their 30s, they spend most of what they earn. They enjoy traveling and going to the theatre; at the same time, they’re saving for retirement and want to buy a home near San Jose, the priciest real estate market around. He has been contributing an amount equal to the company’s match in the 401(k), and is interested in understanding the Roth option.
The day his stock hit $1 million, the 35-year-old sales manager felt his anxiety hit a peak. He knows technology stocks ebb and flow and he really should invest and diversify. He looks for a financial planner who has experience in equity compensation awards -- such as Restricted Stock Awards, Incentive Stock Options and Performance Shares – someone who knows the rules around the equity compensation awards he’s likely to see at his company.
He wants to learn how to invest. After researching robo advisors online, he realizes his equity compensation is too complicated for that solution. He wants to work with a financial planner around his age, avoid missteps in planning for taxes when he sells and make the right financial decisions in the long run. We were introduced after his search for stock-based compensation and financial planners led him to SFG Advisors.
In our first meeting, we listen and gather information. Eighty percent of his grant is fully vested and the rest will vest in 2018, six years and one day from grant date. William shares his financial priorities, such as accumulating funds for home purchase and retirement, as well as managing his equity compensation. Through our Navigate service, we make recommendations to help with short-term decisions and his long-term goals. Now that he has a plan that addresses both long- and short-term needs, William is able to balance his multiple objectives of saving for a home, preparing for retirement and managing his stock-based compensation.
*The name, likeness, and circumstances in this example are a fictional composite of facts from executives similar to actual SFG Clients.
Alison W. Kerber, CFP® is a Senior Associate Planner with SFG Wealth Planning Services, Inc., SFG Investment Advisors, Inc. (SFG), a fee-only financial planning firm. Founded in 1993, SFG is dedicated to assisting senior executives and their employees with their complex stock-based compensation and planning challenges.Tagged: executive compensation, sfg wealth planning services, wealth management, personal financial planner, certified financial planner, tax planning, ipo
Posted In: Executive Compensation, Performance Shares, Performance Stock Units