This Week in Review:
Equity Compensation
This Week:
- Weekly Spotlight
- Recent Polaris News and Insights
- Looking Ahead
Here’s what we’ve been watching this week:
- Stock options have become a much larger percentage of overall compensation for our clients in recent years. And we can help you maximize your benefits. Meanwhile, it’s important to know that how you think about these benefits is key to making the most of them.
These are some of the common myths that tend to trip people up.
- Salary trumps equity. Yes, your salary is important. But equity compensation can complement your base pay—and ultimately make your total take-home package more attractive. In fact, your ideal compensation mix depends on your monthly cash flow needs and long-term financial plan. You may already understand the benefits of diversifying your investment portfolio, but there’s often upside to taking a portfolio approach to compensation, too.
- All equity comp is alike. This isn’t the case. In fact, the various types of equity compensation have different vesting rules and timelines for payout. Though possibly the most important difference is how they are taxed.
For instance, restricted stock units (RSUs) are essentially a part of your salary. When your RSUs vest, they show up on your Form W-2 as income. Often, your company will sell enough shares to cover the income tax owed at your normal withholding rates. If not, you’ll need to increase your withholding to account for the additional income. Other types of stock options have tax rules that are a bit less intuitive: Incentive stock options (ISOs), which are granted, exercised and held for a specific period of time, may qualify for favorable long-term capital gains treatment when sold. Nonqualified stock options (NSOs) don’t enjoy the same tax benefits as ISOs. We can walk you through the details. (In the meantime, here’s more on equity comp taxation.)
- More is always better. A generous stock option benefit is a good thing. But just how good can depend on your overall financial plan. For instance, holding too much of any single stock can pose an inherent risk, especially when your wages are coming from the same company. We advise limiting company shares to 10% of your overall portfolio assets while also keeping an eye on your tax liability.
- You can cash out anytime. Unfortunately, it’s not that simple. A public company, or one that is planning to go public, may restrict when you can sell vested shares to avoid the possibility of insider trading. These “blackout periods” can keep you locked in at a time when you were hoping to sell. Often, options expire after 10 years of holding.
There’s no crystal ball that can tell you exactly when to exercise, hold or sell your shares, but having a solid financial plan is the next best thing. Please loop us in to help you build an equity compensation plan that maximizes your net worth and minimizes your tax liability.
Recent News and Insights
- We’ve compiled a concise reference of 2023 tax brackets, contribution limits, retirement savings deadlines and more.
- In case you missed it, here are the pros and cons of filing taxes jointly with your spouse or separately.
Looking Ahead
Next week we will be watching key reads on consumer and production inflation, consumer and small business owner sentiment, and retail sales, in addition to speeches from two prominent Fed presidents.
If you’d like to learn more about our tactical or fundamental strategies, please contact our team at 800-268-9046 or info@polariswealth.com. And to all who celebrate, chag Pesach sameach, Ramadan Kareem and happy Easter!
Please note: This update was prepared on Friday, April 7, 2023, prior to the market’s close.
This material is distributed for informational purposes only. The investment ideas and opinions contained herein should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.
Purchases and sales of securities listed above represent all securities bought and sold in each strategy during the period stated. Each strategy’s portfolio generally includes more holdings in addition to the transactions listed above and in some cases the securities listed above may only represent a small portion of the particular strategy’s complete portfolio. Further, the securities listed above are not selected for listing based on their investment performance; thus it should not be assumed that any of the securities listed above were profitable or will be profitable, nor should it be assumed that future recommendations will be profitable. Clients and prospective clients should only make judgments about a strategy’s performance after reviewing the strategy’s composite performance information. There is no assurance that each security listed above will remain in the strategy’s portfolio by the time you have received or read this email. Securities are listed for informational purposes and are not intended as recommendations. Existing investor accounts may not participate in all transactions listed above due to each account’s particular circumstances.
Our statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged.
Past performance is not an indication of future returns. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. We do not provide legal advice, nor sell insurance products. Always consult a licensed attorney, tax professional, or licensed insurance professional regarding your specific legal or tax situation, or insurance needs.
Companies mentioned in this article are not necessarily held in client portfolios and our references to them should not be viewed as a recommendation to buy, sell or hold any of them.
Third-party publications referenced in this article (e.g., Citywire, Barron’s, InvestmentNews, CNBC, etc.) are independent of Polaris Wealth Advisory Group. Opinions and statements contained in third-party articles are for informational purposes only; they are not investment recommendations.
© 2023 Polaris Wealth Advisory Group, an Adviser Investments, LLC company. All Rights Reserved.
