Equity is an important part of your benefits package—helping you build your wealth as you plan for your most important financial goals today and tomorrow. Knowing when to exercise those options can have a big impact on your overall financial situation. When making the decision to exercise, both immediate and long-term objectives should be examined.
Some factors to consider when exercising stock options
Current and future financial needs
Is this an opportunity to improve current cash flow or make an investment for the future?
Current tax situation
Exercising stock options has tax consequences. Will you be in the same, a higher, or a lower tax bracket when you're ready to exercise your options? Could you create a plan to exercise options over several years to spread out the realization of taxes?
Risk tolerance
Are you ready to face the market's potential ups and downs, or are you seeking a more stable investment? You can find more information on managing risk of equity compensation here.
Stock option expiration
Do you need to act quickly, or do you have time? If the stock price were to pull back, would there be enough time to recover some or all the options' value?
Plan rules
Plan rules will determine the methods available to exercise your options. Will you need cash to pay for the exercise? Will there be time periods where no transactions will be allowed?
Time horizon for retirement
When will you be retiring/leaving the firm? What are the rules for vesting and expiration upon your separation?
Charitable gifting
There are tax-smart strategies to help more of your donation reach charitable organizations. You can find helpful information here.
Potential benefits of waiting
What are your expectations for the stock price appreciation and the market in general?
Equity compensation planning
This allows for a customized analysis of equity compensation to assist in developing an exercise strategy for stock options, understanding tax implications of your choices. Your Executive Services team can give you a better understanding of awards, so you can help maximize their value and create a thoughtful strategy for how they fit into your broader wealth management plan.
Once a sound strategy is in place for current positions, continue to think about how future grants will be approached—since grants will likely continue, ongoing review of these new positions should also continue. Planning for equity compensation is not a onetime event, and your dedicated Executive Services team can help you plan over time.
Exercising stock options can be complicated partly because the tax implications can vary widely. Consider consulting a tax advisor before you exercise stock options.
Your Fidelity Executive Services team can help you better understand stock options as well as their potential tax implications and answer key questions.