Can I cash out my employee stock options?
Can I Cash Out My Employee Stock Purchase Plan? Yes. The payroll deductions you have set aside for an ESPP are yours if you have not yet used them to purchase stock. You will need to notify your plan administrator and fill out any paperwork required to make a withdrawal.
If a good leaver, the recipient will keep the number of options already vested, and any remaining options will be cancelled. They'll then need to exercise these options into shares within 90 days. Any options not exercised within this timeframe will be cancelled.
If you sell immediately upon exercise, you have locked in your compensation gains (the difference between the exercise price and stock market price). But if you hold the stock, and then sell it later after it appreciates, you may have more taxes to pay.
Yes, it is possible for companies to allow employees to convert their vested stock options into cash instead of exercising them. This is typically done through a secondary market for private company stock, which allows employees to sell their stock options to investors who are willing to buy them.
When to exercise stock options. Deciding when to exercise stock options should be largely dictated by your vesting schedule. Vesting criteria restrict your ability to cash in on your options until you meet certain thresholds, which are typically based on your tenure at a company or performance level.
After the employee terminates, the company can make the distribution in shares, cash, or some of both. Cash is paid to the employee directly. Often, company shares are immediately repurchased by the ESOP, and the employee receives cash equivalent to fair market value as determined by the most recent annual valuation.
These options are typically granted to employees as part of their employment contract, and become exercisable over a period. When an employee is laid off, their employment contract is terminated, and they are no longer eligible to receive new grants of stock options.
Employees can generally sell shares purchased through the employee stock purchase plan at any time. However, if the shares were purchased under a Section 423 plan, the tax consequences will be different depending on how long you have held the shares.
How to Cash Out of an ESOP. Being vested doesn't necessarily mean you can cash out of your ESOP. Generally, it's only possible to redeem these shares if you terminate employment, retire, die, or become disabled. Some ESOPs may distribute dividend payments to employees who are still at the company.
If you exercise stock options and sell your resulting shares in the same transaction (during a company-sponsored tender offer that allows for cashless exercise, for example), you'll pay ordinary income tax on your gains (the amount you sold the shares for minus your strike price).
How do I cash out stock options?
- Hold Your Stock Options.
- Initiate an Exercise-and-Hold Transaction (cash for stock)
- Initiate an Exercise-and-Sell-to-Cover Transaction.
- Initiate an Exercise-and-Sell Transaction (cashless)
Options traders can profit by being option buyers or option writers. Options allow for potential profit during volatile times, regardless of which direction the market is moving. This is possible because options can be traded in anticipation of market appreciation or depreciation.
Stock options aren't actual shares of stock—they're the right to buy a set number of company shares at a fixed price, usually called a grant price, strike price, or exercise price. Because your purchase price stays the same, if the value of the stock goes up, you could make money on the difference.
A generous stock option benefit is certainly nothing to complain about. But it does have a significant risk—the possibility that too much of your wealth will be tied up in a single stock. As a general rule, you want to avoid having more than 10% to 15% of your portfolio tied to a specific company.
Only some companies offer early exercising for equity, which can unlock future tax benefits for recipients. But even if you exercise your options early, your shares will still vest according to your vesting schedule.
If you have an immediate need that can't be put off, selling your shares and using the gains could be a better alternative to taking out a loan or accruing debt. In some cases, you might want to act now if you expect costs to rise.
Understand your policy and make sure you know what vesting period is, exercise price and other terms and conditions applied. Make sure you evaluate your profit/ loss before making your decision about leaving the company. If you are fired from the company for a cause, your ESOPs are forfeited.
Diversification: ESOPs must permit participants who have reached age 55 and completed 10 years of participation in the ESOP the opportunity to begin diversifying their investment in company stock.
If you receive a distribution from an ESOP before you are age 59 ½, the distribution will be subject to a 10% early distribution penalty tax (unless the distribution is due to disability, medical expenses, child support, or a few other exceptions).
If you were granted stock options and have already exercised some or all of those vested options before your departure, you already own those shares—your company usually can't claim or repurchase them when you leave.
How long do I have to exercise my stock options after termination?
The vast majority of startups give terminated employees 90 days to exercise their options, regardless of whether an employee chose to leave or was asked to leave. In the above sample, 82% of companies have a median PTEP of between 89 and 92 days.
According to the stock option agreement, there is a particular time period, within which you should exercise your options or else they will expire (typically 10 years). If you leave the company for a new job, retire, or get laid off, then you typically have a window of 90 days to exercise your options.
Insiders can (and do) buy and sell stock in their own company legally all of the time; their trading is restricted and deemed illegal only at certain times and under certain conditions. A common misconception is that only directors and upper management can be convicted of insider trading.
ESPP Tax Rules for Qualifying Dispositions
A qualifying disposition occurs when you sell your shares at least one year from the purchase date and at least two years from the offering date. If you trigger a qualifying disposition, you may be subject to ordinary income tax and/or long-term capital gains tax.
But your corporation can validly curtail that right by including a provision in the corporation's articles of incorporation or bylaws placing reasonable restrictions on the shareholders' right to transfer their shares. See Cal. Corp. Code §§ 204(b), 212(b)(1).
