Often time’s company stock is the largest item that a client will own on their balance sheet. This can be a great boon or a pitfall. It is important that we have a plan in place to manage around it. Integrating it within the overall portfolio construction is a critical element.
We will put together an investment plan that integrates the company stock.
A part of that process is to create and implement a 10b(5)-1, pre sale plan – which can help provide a systematic mechanism to sell the stock. A rule of thumb is to sell 25% of the vested holdings on an annual basis.
Now more and more companies are providing restricted stock units (RSU)or performance restricted stock (PRSU) instead of stock options.
The dilemma this poses is that we can’t control the timing of the vesting of these stock units and this can lead to very large amounts of ordinary income.
With the top federal tax rate of 39.6% and the top California tax rate of 13.3 This can have great impact upon the rest of the taxation you may face. It may impact the trigger for the Medicare surtax and increased Medicare tax rates.
The jargon of equity compensation is also confusing – if you need help translating the below vocabulary give me a call: