Stock Options - MWBoone & Associates

If you're receiving company stock as part of your compensation, congratulations are in order! You're in the enviable position of owning part of the company you work for--and are positioned to reap personal benefits when the company performs well.

Of course, you're also a very busy person, which is why you may not have taken the time to become well-versed in the financial implications of your stock ownership plan. But as an owner of company stock, you'll have to make many decisions to take advantage of investment and tax planning opportunities related to your stock ownership plan. Many plans or awards have trigger dates that can be anticipated and planned for, such as disability, death, retirement and separation from service – events that require significant decisions within tight deadlines. And without proper financial planning, you or your family may be ill equipped to make those important and irrevocable decisions.

MWBoone & Associates can help you identify the financial implications of your plan and develop an overall financial plan that takes into account your stock ownership. Following are important issues to review with your adviser.

Six Key Questions

Do I own too much of my company's stock?

Most professional financial advisers agree that diversification is the single most important financial planning step for those owning employer stock. Many stock plan participants rely too heavily on company stock and don't diversify their portfolio. Diversification is vital. Regardless of how optimistic you are about your company's outlook, why take needless risks with your future?

Is my company's stock a good investment for me?

Most professional financial advisers believe employer stock ownership can have a positive impact on your portfolio, as long as you diversify your assets to protect yourself, and we agree. But we'll need to evaluate your options based on your personal situation.

Am I missing out on special tax planning opportunities ?

We can help you review tax-planning opportunities and decide on the best strategies. Issues include decisions regarding your ability to take distributions in stock, the source of funds to pay taxes on distribution, or whether to pay tax now or defer taxes in an IRA rollover. If you exercise incentive stock options or have unusually large amounts of deductions, you might be a candidate for paying the Alternative Minimum Tax (AMT).

How does owning employer stock affect estate planning?

Many stock-based plans do not pass under the terms of a will. In addition, some plans have separate beneficiary forms that are signed in the event of death before vesting, and they may not correlate with wills and estate plans. Another consideration is the Lifetime Transfer of Stock Options. More and more companies are amending their stock option plans to permit certain employees to transfer options to their children or to trusts or partnerships for their children. A professional financial adviser can help you factor these issues into your estate planning.

How long should I hold my company stock?

You'll need to evaluate this issue based on your stock options and financial goals. You should be aware of the terms of your options, such as their restrictions, when they can be exercised, how long you're allowed to hold them after you retire or leave the company for another job, and when the options expire. You also should consider the timing of cashing in. We can help you factor in these considerations when developing your financial plan.

Do I have to be concerned about insider trading issues?

If you own company stock, you should be aware of insider trading issues. As employer stock ownership continues to grow, the government is increasing its surveillance of the market for signs of insider trading. A trade is considered illegal when someone buys or sells company securities while having material information not available to the public. A professional financial adviser can help you better understand these issues and avoid making mistakes.

Depending on your company's situation, you may also need to consult an adviser on other issues, like maintaining required levels of stock ownership or special issues created by stock ownership of privately held companies.

For more information about Questions to ask your Financial Adviser- or for someone who can help you make decisions regarding your stock-based compensation, follow our links. Or learn more about financial planning in general.