What Issues Should I Consider Regarding My Incentive Stock Options?

[Checklists and Flow Charts] - What Issues Should I Consider Regarding My Incentive Stock Options? | The Retirement Planning Group

Incentive Stock Options (ISOs) are a fantastic addition to your compensation package, but before you make any moves, there are a few key things to think about. Let’s dive in!

Exercise Price

When it comes to your ISOs, the exercise price is crucial. It’s the cost at which you can buy the stock, and it’s usually set to the stock’s fair market value on the day the option was granted. When you exercise your option, you’ll need to pay this price to get your shares. If the stock price is higher than the exercise price, you could be looking at a profit when you sell your shares!

Holding Period Requirements

To get the tax benefits of ISOs, you have to hold onto the shares for a specific amount of time after exercising the option. If you sell the shares before the required time, you could face ordinary income tax on the difference between the exercise price and the fair market value at the time of sale.

Company Performance

Your ISOs are directly connected to the performance of the company’s stock. If the company is thriving and the stock price rises, your ISOs will be worth more. On the other hand, if the company isn’t doing as well and the stock price decreases, your ISOs may not be worth as much as the exercise price.

Stock Vesting Schedule

ISOs often have a vesting schedule, which means you’ll receive the option to purchase the stock over time. This schedule can greatly impact the value of your ISOs, so it’s important to understand the terms before making any decisions. 

ISO Limitations

There’s a limit to the number of ISOs that can be granted to one person in a year, as well as a limit to the total value of ISOs that can be exercised in a year. These restrictions could affect your ability to fully use your ISOs, so be sure to keep them in mind when making decisions. 

ISOs are a fantastic part of your compensation package, but it’s important to consider the exercise price, holding period requirements, company performance, stock vesting schedule, and ISO limitations before making any moves. With this information and our downloadable checklist, you can feel more informed about your ISOs and make the most out of them as part of your overall financial plan.

At The Retirement Planning Group, we understand that retirement planning can be a daunting task. That’s why we work with you to ensure you are making the most of your ISOs. We begin our process with a free 10-minute guidance call where we discuss your options, and answer any questions you may have about your ISOs. Schedule your 10-minute guidance call today to see how we can help you!