Vested stock option

Many companies issue stock options for their employees.

When used appropriately, these options can be worth a lot of money to you. With an employee stock option plan, you are issued the right to buy a specific number of shares of company stock, at a specified price called the grant price also called the exercise price or strike price , within a specified number of years. Your options will have a vesting date and an expiration date.

Understanding Your Employee Stock Options

You cannot exercise your options before the vesting date or after the expiration date. There are a few ways you can do this:. Different tax rules apply to each type of option. With non-qualified employee stock options, taxes are most often withheld from your proceeds at the time you exercise your options. This is not necessarily the case for incentive stock options.

With proper tax planning you can minimize the tax impact of exercising your options. Your employee stock option plan will have a plan document that spells out the rules that apply to your options.

Get a copy of this plan document and read it, or hire a financial planner that is familiar with these types of plans to assist you. There are many factors to consider in deciding when to exercise your options.

Investment risk, tax planning, and market volatility are a few of them, but the most important factor is your personal financial circumstances, which may be different than those of your co-worker. Keeping too much company stock is considered risky. When your income and a large portion of you net worth is all dependent on one company if something bad happens to the company your future financial security could be in jeopardy. Corporate executives need to consider this in their planning and work to diversify out of company stock.

Vesting

Search the site GO. Updated May 18, Employee stock option basics With an employee stock option plan, you are issued the right to buy a specific number of shares of company stock, at a specified price called the grant price also called the exercise price or strike price , within a specified number of years. Get Daily Money Tips to Your Inbox Email Address Sign Up.

There was an error. Please enter a valid email address.

Personal Finance Money Hacks Your Career Small Business Investing About Us Advertise Terms of Use Privacy Policy Careers Contact.