What is a secondary sale?

A secondary sale is a transaction where existing shareholders sell shares directly to a buyer, such as an investment fund or other investor, rather than the company issuing new shares. Unlike a primary funding round, where money goes to the company, proceeds from a secondary sale go directly to the selling shareholder. Some secondary sales are company-organized (sometimes structured as tender offers), while others are individually arranged private transactions.

Can I actually sell my shares whenever I want?

Almost certainly not without restrictions. Private company stock typically comes with transfer restrictions written into your option plan and stockholder agreements, most commonly a right of first refusal (ROFR), which lets the company or its investors match any offer and buy the shares themselves before you can sell to an outside buyer. Many companies also require board approval for any transfer of shares, meaning you generally can’t just sell to whoever you find on your own.

Do I need to have exercised my options first?

Generally yes. You typically need to actually own shares, meaning you’ve already exercised your vested options, before you can participate in a secondary sale. Some company-organized secondary transactions include an option for participants to exercise and sell simultaneously, effectively netting out the strike price from the proceeds, but this depends on how the specific transaction is structured.

How does the price get set?

Pricing in a secondary sale is negotiated between the buyer and seller (or set by the company if it’s organizing the transaction), and it’s often, though not always, at a discount to the company’s most recent primary funding round price, reflecting the buyer’s own required rate of return and the illiquidity of private shares. It’s a different number than your 409A valuation, which is set independently for tax purposes rather than for pricing actual transactions.

What role does the company play?

A significant one, in most cases. Beyond the right of first refusal and board approval requirements, many companies actively organize and control secondary sales, deciding which employees are eligible, how many shares each person can sell, and which buyers are approved to participate. Some companies discourage individually arranged secondary sales entirely and only permit selling through company-sponsored events.

Worked example

Say you hold 15,000 exercised shares, and your company is facilitating a secondary sale with a specific institutional buyer at $18 a share, a discount to the company’s last primary round price of $22. Your company’s plan allows employees to sell up to 20% of their vested, exercised shares in this particular transaction.

You’d be eligible to sell up to 3,000 shares (20% of 15,000) for $54,000 before tax, assuming the company approves your participation and the buyer’s offer goes through. The remaining 12,000 shares would stay illiquid until a future opportunity, whether another secondary sale, an acquisition, or an IPO.

FAQ

Do I need the company’s permission to sell my shares? In almost all cases, yes. Standard transfer restrictions like a right of first refusal and board approval requirements mean you generally can’t sell without the company’s involvement.

Can I sell unexercised options in a secondary sale? Generally no. You typically need to own actual shares, meaning you’ve exercised, though some company-organized transactions allow exercising and selling in the same event.

Is the secondary sale price the same as my company’s 409A valuation? No. They’re set independently, for different purposes, and secondary sale prices are often at a discount to the most recent primary funding round.

How often do secondary sales happen? It varies significantly by company. Some later-stage companies organize them periodically as an employee benefit; many companies never offer one before an eventual IPO or acquisition.

What happens to the shares I don’t sell? They remain illiquid, subject to the same transfer restrictions, until your next opportunity, whether that’s a future secondary sale, an acquisition, or an eventual IPO.

What to do next

Whether a secondary sale is happening at your company, and whether you’re eligible to participate, is something to confirm directly with your equity plan administrator or HR, since it’s entirely company-specific. You can model your own numbers for a potential sale at movewealth.io.

MoveWealth is not a broker-dealer, investment adviser, or lender. This is educational content, not financial, tax, or legal advice. Consult a qualified professional about your specific situation.

What is QSBS?

QSBS stands for Qualified Small Business Stock, and it refers to stock that, if it meets a set of requirements under Section 1202 of the tax code, lets you exclude some or all of your capital gain from federal income tax when you sell. The requirements cover the type of company (a domestic C-corporation), how the stock was acquired (generally at original issuance, not purchased secondhand), and how the company’s size is measured at the time of issuance.

What changed for QSBS in 2025?

Legislation enacted on July 4, 2025 made several taxpayer-favorable changes to Section 1202, but only for stock acquired after that date. Stock acquired on or before July 4, 2025 continues to follow the original rules. This creates two parallel systems depending on your stock’s acquisition date, and the two can’t be mixed for the same shares.

What are the rules for stock acquired on or before July 4, 2025?

Under the original rules, you need to hold the stock for more than five years to exclude any gain, and if you meet that threshold, you can potentially exclude 100% of your gain (the exact percentage depends on when the stock was originally issued, since the exclusion percentage itself was increased in stages over the years). The company also needed to have aggregate gross assets under $50 million at the time your stock was issued. The exclusion is capped at the greater of $10 million or 10 times your basis in the stock.

What are the rules for stock acquired after July 4, 2025?

The new rules replace the all-or-nothing five-year requirement with a tiered structure: 50% of gain excluded after a three-year hold, 75% after four years, and 100% after five years. The company size threshold was also raised, to $75 million in aggregate gross assets at issuance, and the exclusion cap was increased to the greater of $15 million or 10 times your basis. Gain that isn’t excluded under the tiered system is generally taxed at a 28% rate plus the 3.8% net investment income tax, rather than standard capital gains rates.

How do I know if my company qualifies as a “qualified small business”?

The core test is whether the company’s aggregate gross assets stayed under the relevant threshold ($50 million or $75 million, depending on your stock’s acquisition date) at all times up through immediately after your stock was issued. Aggregate gross assets is a specific tax concept, roughly cash plus the adjusted basis of other property the company holds, and it’s measured at the company level, not something you can typically verify yourself without company records. Ask your equity plan administrator or the company’s finance team directly rather than assuming based on the company’s funding round valuation, which is a different measure entirely.

Can I improve my QSBS position by exchanging older stock for newer stock?

Generally no, and attempting this can be risky. Exchanging previously issued stock for newly issued shares specifically to access the more favorable post-2025 rules does not typically work, and can jeopardize your QSBS status on that stock entirely. The rules that apply to your shares are generally locked in based on your original acquisition date.

Worked example

Say you exercised ISOs and acquired shares on August 1, 2025, after the new rules took effect, and your company met the $75 million gross asset threshold at that time. You hold the shares for four years before selling, realizing a $2 million gain.

Under the tiered system, holding for four years qualifies you to exclude 75% of that gain, or $1.5 million, from federal tax. The remaining $500,000 would generally be taxed at the 28% rate plus the 3.8% net investment income tax, rather than standard long-term capital gains rates. Had you waited one more year to hit the five-year mark, the full $2 million could potentially have been excluded, subject to the overall cap.

FAQ

Does every startup automatically qualify as a “qualified small business”? No. It depends on the company’s aggregate gross assets at the time your stock was issued staying under the relevant threshold, along with other requirements like being a domestic C-corporation.

Do stock options themselves qualify for QSBS treatment? No. QSBS applies to the stock you receive when you exercise, not to the unexercised option itself, and the holding period generally starts when you acquire the actual shares.

What happens if I sell before meeting the holding period? You wouldn’t receive any QSBS exclusion, and the gain would be taxed under standard capital gains rules based on how long you held the shares.

Does the QSBS rule change apply to stock I already hold? No. Stock acquired on or before July 4, 2025 keeps the original all-or-nothing five-year rule. Only stock acquired after that date follows the new tiered system.

Is QSBS eligibility something I can check myself? Not entirely. Whether your company meets the gross asset threshold is a company-level determination, so it’s worth asking your company’s finance team or a tax professional directly rather than guessing.

What to do next

QSBS is a genuinely valuable but detailed area of the tax code, and this is a fast-moving area given the 2025 changes, so confirming your specific situation with a tax professional is worth doing before making decisions based on it. You can model your own holding-period timeline at movewealth.io.

MoveWealth is not a broker-dealer, investment adviser, or lender. This is educational content, not financial, tax, or legal advice. Consult a qualified professional about your specific situation.

What is a cap table?

A cap table is a detailed record of a company’s ownership structure: every shareholder (founders, investors, and employees who’ve exercised options), every class of stock (common and the various series of preferred), and every outstanding option or other convertible security, along with the price paid and the percentage of the company each one represents. Companies maintain and update it continuously, especially around funding rounds, new hires, and departures.

Where do I appear on the cap table before I exercise my options?

You typically don’t appear as an individual shareholder yet. Unexercised options are usually tracked in aggregate as part of the company’s “option pool,” a reserved block of shares set aside for equity compensation, rather than listed under your name specifically. Once you exercise and actually own shares, you’d appear as a common stockholder in your own right.

What’s the difference between common and preferred stock on a cap table?

Common stock is what employees and founders typically hold, and it carries the fewest special rights. Preferred stock is what investors receive in funding rounds, and it comes with additional protections, most notably a liquidation preference, which generally means preferred holders get paid out before common holders in an acquisition or wind-down, up to a specified amount. This is part of why your strike price (based on common stock value) is typically lower than what investors paid per share for preferred stock in the same period.

What is the option pool, and why does it matter?

The option pool is the block of shares a company sets aside specifically for granting employee equity, and it’s typically established or expanded around funding rounds. A larger option pool generally means the company has more room to grant new equity to future hires, but it also means more total shares outstanding, which affects everyone’s percentage ownership through dilution.

How does dilution show up on a cap table?

Every time a company issues new shares, whether to new investors, new employees, or through an expanded option pool, existing shareholders’ percentage of the total company shrinks proportionally, even though the number of shares they personally hold doesn’t change. This is normal and expected as a company raises money and grows, but it means your percentage ownership at grant is very unlikely to be your percentage ownership years later, even if you never sell a single share.

Worked example

Say a company has 10,000,000 total fully diluted shares, and you hold options for 40,000 shares, representing 0.4% of the company at that moment. The company then raises a new round, issuing 2,000,000 new preferred shares to investors and expanding the option pool by 1,000,000 shares for future hires.

Total shares outstanding rise to 13,000,000. Your 40,000 shares (still 40,000, unchanged) now represent roughly 0.31% of the company instead of 0.4%, purely due to dilution from the new shares, even though nothing happened to your specific grant.

FAQ

Do I get to see the company’s full cap table? Not usually in detail. Private companies generally keep full cap tables confidential, though you’re typically entitled to information about your own specific grant and sometimes your approximate ownership percentage.

Does dilution mean my shares are worth less? Not necessarily. Dilution reduces your percentage of the company, but if the company’s total value grows enough, the dollar value of your smaller percentage can still increase.

Why is preferred stock worth more than common stock for the same company? Because preferred stock carries additional rights, most importantly a liquidation preference that pays those holders first in an exit, which common stockholders (including option holders) don’t have.

Do all employees get added to the cap table individually? Only once they exercise options and hold actual shares. Before that, unexercised options are generally tracked as part of the aggregate option pool.

How often does the cap table change? Continuously in an active startup, especially around funding rounds, new hires, departures, and any exercises or sales of stock.

What to do next

Your specific ownership percentage and how it’s likely to change with future funding rounds depend on your company’s actual cap table, not general examples like the one here. You can model your own numbers at movewealth.io.

MoveWealth is not a broker-dealer, investment adviser, or lender. This is educational content, not financial, tax, or legal advice. Consult a qualified professional about your specific situation.

What actually happens to my options in a down round?

Once the down round closes, the company typically commissions a new 409A valuation reflecting the lower price, since a new funding round is a material event that requires an updated valuation regardless of direction. If your strike price was set based on the company’s prior, higher valuation, and the new FMV comes in below that strike price, your options become underwater immediately, meaning there’s currently no financial reason to exercise them.

Why does this happen automatically?

Because a down round is direct evidence of the company’s current value, and 409A valuations are required to reflect the most recent, best available information. A valuation from before the down round becomes unusable the moment the new round closes, and the new valuation has to account for the lower price investors just paid, which typically pulls common stock value down as well.

Does this affect options I’ve already vested and exercised?

If you’ve already exercised and hold actual shares, a down round affects the value of what you own, but doesn’t create a new tax event or take the shares away. It’s unvested and unexercised options that are directly affected by becoming underwater, since their value depends entirely on the gap between your fixed strike price and the now-lower FMV.

What do companies typically do about underwater options?

There’s no single required response, but a few common approaches show up repeatedly: repricing existing options down to match the new, lower valuation (which usually requires board approval and sometimes shareholder approval); offering an exchange program where employees trade in underwater options for new ones at the current lower price; issuing additional refresh grants on top of existing underwater ones; or simply maintaining the status quo and waiting to see if the valuation recovers in a future round. Each of these decisions is the company’s to make, not something you can request unilaterally.

Does a down round change my vesting schedule?

No. Your vesting schedule is independent of the company’s valuation. A down round doesn’t accelerate, slow down, or otherwise change how much of your grant vests or when, it only affects what that vested (or unvested) equity is currently worth.

What about new hires after the down round?

New employees granted options after the down round will have their strike price set against the new, lower 409A valuation, meaning they’ll likely have a lower strike price than employees who joined before the down round. This can create a noticeable gap between what longer-tenured employees and newer hires are paying to exercise, even for the exact same type of grant.

Worked example

Say you were granted 20,000 options at a $5 strike price, based on the company’s Series B 409A valuation. The company then raises a Series C down round, and the resulting new 409A valuation comes in at $2 a share.

Your strike price stays at $5, since that’s fixed to your original grant. Your options are now underwater by $3 a share, meaning exercising at $5 to buy shares currently valued at $2 wouldn’t make financial sense. If the company later offers a repricing or exchange program, your options might be adjusted down toward the new $2 valuation, but that depends entirely on what the company chooses to do, not something that happens automatically.

FAQ

Are my options worthless if my company has a down round? Not necessarily worthless long-term, but likely underwater at the current valuation, meaning there’s no immediate financial reason to exercise. If the company’s value recovers in a future round, the options could become in-the-money again.

Will my company automatically reprice my underwater options? No. Repricing requires a specific company decision and often board or shareholder approval. Some companies do this after a down round, others don’t.

Does a down round affect my vesting schedule? No. Vesting continues on its original schedule regardless of changes in valuation.

Should I exercise underwater options? There’s rarely a financial reason to exercise options priced above the current fair market value, since you’d be paying more than the shares are currently considered worth. Whether that changes depends on your own view of the company’s future prospects.

Do new hires get a lower strike price after a down round? Yes, typically. New grants after a down round are priced against the new, lower 409A valuation, which can create a real gap between what different cohorts of employees pay to exercise similar grants.

What to do next

Whether and how your company addresses underwater options after a down round is a company-specific decision you’ll likely hear about directly from HR or your equity plan administrator, not something governed by a universal rule. You can model your own numbers at movewealth.io.

MoveWealth is not a broker-dealer, investment adviser, or lender. This is educational content, not financial, tax, or legal advice. Consult a qualified professional about your specific situation.

What is a strike price?

Your strike price is the fixed price per share you’re entitled to pay when you exercise your options, set at the time your options were granted and locked in for the life of that specific grant. It’s sometimes called the exercise price, and it doesn’t change based on later company performance, funding rounds, or new valuations, no matter how much time passes between your grant date and when you actually exercise.

What is fair market value?

Fair market value (FMV) is the current estimated worth of a single share of the company’s common stock, determined at private companies through a 409A valuation and updated at least every 12 months or after a material event like a new funding round. Unlike your strike price, FMV moves over time, generally reflecting how the company’s overall value has changed since your options were granted.

How are they related?

At the moment your options are granted, your strike price is typically set equal to the FMV at that time, which is a requirement, not a coincidence. Companies are required to price option grants at or above fair market value to avoid tax penalties, so the two numbers start out matched. From that point forward, your strike price stays frozen while FMV moves independently, and the gap between them (called the spread) is what determines whether your options are actually worth exercising.

Why does the gap between them matter so much?

The spread between your strike price and current FMV is essentially the built-in value of your options. If FMV is above your strike price, exercising means buying shares for less than they’re currently considered worth, which is the entire appeal of holding options. If FMV falls below your strike price, the options are “underwater,” meaning there’s no financial reason to exercise, since you’d be paying more than the shares are currently valued at.

Does my strike price ever change?

No, not for options you already hold. Your strike price is fixed at grant and stays that way regardless of how many new 409A valuations come afterward. The only way your effective price changes is if your company undertakes a formal repricing, typically in response to a down round, which requires a specific company action rather than happening automatically.

Worked example

Say you’re granted 5,000 options with a strike price of $3, matching the 409A valuation at the time of your grant. Two years later, after a new funding round, the current FMV has risen to $11 a share.

Your strike price is still $3, unchanged. The spread is now $8 a share, or $40,000 total across your grant, which is the taxable amount if you exercise (subject to ISO or NSO rules) and the rough measure of your options’ current built-in value. If instead the company had gone through a down round and FMV fell to $2, your options would be underwater, with no financial reason to exercise at a $3 strike price for shares currently valued below that.

FAQ

Is my strike price the same as what I’ll pay in taxes? No. Your strike price is what you pay to buy the shares. Tax is based on the spread between your strike price and FMV (for options) or on other separate calculations, not on the strike price itself.

Can my strike price go up after I’m granted options? No. It’s fixed at your grant date and doesn’t increase later, regardless of how the company’s valuation changes.

What does it mean if my options are underwater? It means the current fair market value is below your strike price, so exercising would mean paying more than the shares are currently considered worth.

Where do I find my strike price and the current FMV? Your strike price is on your original grant agreement. The current FMV comes from your company’s most recent 409A valuation, which your equity plan administrator or HR team can typically provide.

Does a new funding round automatically change my strike price? No. A new round can trigger a new 409A valuation, which sets the strike price for new grants going forward, but it doesn’t retroactively change the strike price on options you already hold.

What to do next

Your specific strike price and your company’s current FMV determine your actual spread, not general industry patterns. You can model your own numbers at movewealth.io.

MoveWealth is not a broker-dealer, investment adviser, or lender. This is educational content, not financial, tax, or legal advice. Consult a qualified professional about your specific situation.

What does an 83(b) election actually do?

Normally, if you receive stock that’s subject to vesting (meaning the company can take it back if you leave), the IRS doesn’t tax you until each portion actually vests, using the stock’s value on each vesting date. An 83(b) election changes that by electing to be taxed on the full value right now, at the time you receive or exercise the stock, instead of spread out across future vesting dates. If the value at that moment is low, or the spread is zero, this can mean little or no tax due upfront, and no additional tax due as the shares vest later, regardless of how much the value rises in the meantime.

Who actually needs to think about this?

Mainly two groups: employees who early exercise unvested stock options, and founders or very early employees who receive restricted stock directly rather than options. If you only exercise options after they’ve already vested, an 83(b) election generally isn’t relevant, since there’s no future vesting left to worry about.

Why does the 30 day deadline matter so much?

The IRS requires the election to be filed within 30 calendar days of the date you acquired the stock, and there are no extensions, no exceptions for weekends or holidays beyond the standard calendar count, and no way to file late even with a good excuse. Miss the window, and you lose the ability to make the election for that specific stock purchase entirely, meaning you’re taxed at each vesting date using the value on that date instead of your original, often lower, purchase date value.

What happens if I don’t file it?

Without a timely 83(b) election, each vesting tranche becomes its own taxable event, measured using the fair market value on that vesting date rather than your original exercise date. If the company’s value has risen significantly by the time your shares vest, this generally means a bigger tax bill than if you’d locked in the value back at exercise, and for early exercised ISOs, it also affects when the AMT preference item is measured.

What does the filing process actually involve?

You prepare a short written statement with specific required information (your details, a description of the stock, the date of transfer, and the value at that time, among other items), sign it, and mail it to the IRS service center where you’d file your tax return, within the 30 day window. Many people send it by certified mail with a return receipt to have proof of the mailing date, since that’s what the IRS deadline is measured against. You also typically need to include a copy with your tax return for that year and keep a copy for your own records.

Worked example

Say you early exercise 10,000 unvested options at a $1 strike price, and the current fair market value is also $1, so the spread is zero. You file your 83(b) election within the 30 day window.

Because the election was timely and the spread was zero, there’s no tax due at exercise, and as the shares vest over the following years, there’s no additional tax event at each vesting date either, even if the company’s valuation climbs substantially. If you’d missed the deadline, each vesting tranche would instead be taxed based on the value on that specific vesting date, likely creating tax bills you didn’t plan for as the company grows.

FAQ

Does every option exercise need an 83(b) election? No. It only matters for unvested stock, most commonly from early exercising options before they vest. Exercising already-vested options doesn’t involve this election.

What happens if I miss the 30 day deadline? The election is void for that purchase, with no way to file late. You’ll be taxed at each future vesting date instead, based on the value at that time.

Do I need to file an 83(b) election for RSUs? Generally no. RSUs aren’t property you own until they’re delivered, so the mechanics that make an 83(b) election relevant for early-exercised options or restricted stock don’t typically apply the same way.

Can I file an 83(b) election if the spread isn’t zero? Yes, but you’d owe tax on that spread at the time of filing, which is the tradeoff. It still may lock in a lower value than waiting for future vesting dates if you expect the company’s value to keep rising.

Do I need a tax professional to file this? It’s not legally required, but given the strict deadline and the permanent consequences of getting it wrong, many people have a tax professional or attorney review the filing before sending it.

What to do next

If you’re considering early exercise or have received restricted stock directly, the 30 day clock starts on your exercise or purchase date, not on when you get around to thinking about taxes. You can model your own exercise costs and timing at movewealth.io.

MoveWealth is not a broker-dealer, investment adviser, or lender. This is educational content, not financial, tax, or legal advice. Consult a qualified professional about your specific situation.

What actually happened?

Vanguard and Altruist announced a definitive agreement for Vanguard to acquire Altruist, with the deal expected to close later in 2026, subject to regulatory approval. Multiple outlets report the price differently: The Wall Street Journal’s sources put it at roughly $4 billion, while Wealth Management reported $4.6 billion citing people familiar with the details. Neither company has confirmed an exact figure publicly. Altruist is expected to continue operating as a standalone business under Wenk’s leadership, keeping its brand and team, rather than being absorbed directly into Vanguard’s existing operations.

Why is this deal notable relative to Altruist’s last valuation?

Altruist’s most recent funding round, in April 2025, valued the company at $1.9 billion. Even using the lower of the two reported acquisition figures, roughly $4 billion, the deal price is more than double that last private valuation. That gap matters for anyone holding equity in a similar situation: it’s a real example of an acquisition pricing a company well above its most recent primary round, the opposite of the down-round scenario that gets more attention.

Does an all-cash deal typically mean employees get cashed out?

In many all-cash acquisitions, yes, vested options are commonly cashed out for the deal price per share minus the strike price, though the exact mechanics depend entirely on the merger agreement, which hasn’t been made public here. We covered the general mechanics, including how unvested options and double-trigger acceleration typically work, in a companion piece on what happens to your options when your company is acquired. Nothing in the public Altruist announcement confirms these specifics apply, but the general pattern is worth understanding if you’re in a comparable position at your own company.

What don’t we know yet?

Quite a lot, and that’s normal at this stage. Employee-level details, including how vested and unvested options are treated, whether there’s an escrow holdback, and the exact payout timeline, are almost never part of a public acquisition announcement. Companies typically communicate those specifics directly to affected employees through internal channels once the deal is further along or closed, not through press releases. If you work at a company going through a similar announcement, the public coverage is rarely where you’ll find your own answers.

If you’re in a similar situation, what should you actually check?

Your own merger agreement notice and option plan documents, once your company distributes them, not general news coverage of the deal. The questions worth having answered are the same ones covered in our broader acquisition guide: whether your vested options are being cashed out or converted, whether any acceleration provision applies to your unvested shares, and whether any portion of the proceeds will be held in escrow.

FAQ

Is the Vanguard-Altruist deal final? No. It’s a signed agreement expected to close later in 2026, subject to customary closing conditions and regulatory approval, not a completed transaction yet.

How much is Altruist actually being acquired for? Neither company has confirmed a figure publicly. Reported estimates range from roughly $4 billion to $4.6 billion, depending on the source.

Will Altruist continue operating after the deal closes? According to the announcement, yes, as a standalone business under its current leadership, rather than being merged directly into Vanguard’s existing structure.

Does this kind of acquisition always mean employees receive a cash payout? Not automatically. It depends on the specific merger agreement and each employee’s vesting status at closing, details that haven’t been made public for this deal.

Where would Altruist employees find out how this affects their own equity? Through official company communications once available, not through public news coverage of the announcement, which typically doesn’t include employee-level deal terms.

What to do next

If you’re facing a real acquisition at your own company, the general mechanics covered in our guide to what happens to stock options in an acquisition are a starting point, but your own grant agreement and whatever your company communicates directly are what actually apply to you. You can model your own numbers at movewealth.io.

MoveWealth is not a broker-dealer, investment adviser, or lender. This is educational content, not financial, tax, or legal advice. Consult a qualified professional about your specific situation.

What is the AMT?

The AMT is a separate tax calculation that runs alongside your regular income tax. You calculate your tax both ways, under the regular rules and under the AMT rules, and pay whichever amount is higher. It exists specifically to add back certain deductions and income items that the regular tax system treats favorably, and the spread from exercising ISOs is one of those items.

How does exercising ISOs trigger AMT?

When you exercise an ISO, the difference between your strike price and the stock’s current fair market value, called the spread, doesn’t count as regular taxable income. But it does count as an “AMT preference item,” meaning it gets added into a separate AMT income calculation even though no cash changed hands and you haven’t sold anything. If that AMT calculation ends up higher than your regular tax bill for the year, you owe the difference.

What is the AMT exemption, and how much can I earn before owing it?

The AMT system includes an exemption amount that shields your first chunk of AMT income from tax entirely. For 2026, that exemption is $90,100 for single filers and $140,200 for married couples filing jointly. Above certain income levels ($500,000 single, $1,000,000 joint for 2026), the exemption itself starts phasing out, meaning higher earners get less protection from it.

How is AMT actually calculated?

Once your AMT income exceeds your exemption amount, the excess is generally taxed at 26%, rising to 28% on larger amounts. In practice, this means a big ISO exercise can create real, immediate tax liability that has nothing to do with whether the shares are worth anything you can actually spend, since private company stock typically can’t be sold on the spot.

What is the AMT credit, and do I get that money back?

Yes, in a sense. AMT paid because of an ISO exercise generally becomes a credit you can use in future years to offset your regular tax bill, once your regular tax exceeds what your AMT would be. This is meant to prevent true double taxation over time, but the credit only helps once you have enough regular tax liability to use it against, which can take years, especially if the company never has a liquidity event and the stock never becomes sellable.

Does exercising NSOs trigger AMT?

No. NSOs don’t create an AMT preference item at exercise. Instead, the spread is taxed immediately as ordinary income, which is a different mechanism with its own upfront cost. Neither path avoids paying tax on the spread eventually, they just differ in when and how.

Worked example

Say you exercise 15,000 ISOs with a $4 strike price when the fair market value is $16 a share. The spread is 15,000 times ($16 minus $4), or $180,000, which becomes AMT income for the year.

For a single filer with no other AMT income, subtracting the $90,100 exemption leaves $89,900 subject to AMT at 26%, or roughly $23,374 owed, using 2026 figures. That’s real cash due by tax time, even though the shares themselves can’t be sold to cover it if the company is still private. This is a simplified estimate. Your actual AMT depends on your total income, filing status, and other preference items, so it’s worth running your specific numbers with a tax professional before exercising a large batch of ISOs.

FAQ

Do I owe AMT just for holding ISOs? No. AMT is only triggered when you exercise ISOs, not simply by having them granted or vested.

Can I avoid AMT entirely? Exercising NSOs instead of ISOs avoids AMT specifically, but creates ordinary income tax instead, which is often a similar or larger cost. Exercising smaller batches of ISOs over multiple years, staying under the exemption amount each year, is another approach some people use, though it depends on your specific situation.

Do I get the AMT money back if the company fails? Not directly. The AMT credit only offsets future regular tax liability, so if you never have enough future income to use it against, or the company fails and the stock becomes worthless, the AMT you paid isn’t refunded, though you may be able to claim a capital loss in some circumstances.

Is AMT the same as capital gains tax? No. AMT is a separate calculation triggered at exercise for ISOs. Capital gains tax applies later, when you actually sell the shares.

How do I know if I’ll owe AMT before I exercise? It depends on your total income, filing status, and the size of the spread on the options you’re exercising. Tax software or a tax professional can model this before you commit to exercising.

What to do next

The exact AMT impact of exercising depends on your full financial picture, not just the spread on one grant. You can model your own exercise costs and estimated AMT at movewealth.io.

MoveWealth is not a broker-dealer, investment adviser, or lender. This is educational content, not financial, tax, or legal advice. Consult a qualified professional about your specific situation.

What is a stock option?

A stock option is the right to buy a set number of shares at a fixed strike price; once vested, it’s not stock itself, but a right to purchase stock later. That right only has value if the company’s fair market value rises above your strike price; if it falls below, the option is “underwater” and worth nothing unless the value recovers. Exercising requires paying your strike price in cash (or occasionally through other structures), and the tax treatment depends on whether it’s an ISO or NSO.

What is an RSU?

A restricted stock unit (RSU) is a company’s promise to give you actual shares once specific conditions are met, with no purchase price required. You don’t pay anything to receive the shares. Because there’s no strike price involved, RSUs always have some value as long as the company’s stock is worth anything above zero, unlike options, which can go underwater entirely.

How is the tax treatment different?

Options create a taxable event only when you exercise (and again when you eventually sell), and the amount taxed is the spread between your strike price and fair market value, meaning you control some of the timing by choosing when to exercise. RSUs create a taxable event automatically once they vest (and, at private companies, once any additional conditions are met, more below), with the full fair market value of the delivered shares taxed as ordinary income, and no ability to defer that by choice the way you can with an unexercised option. Companies typically withhold on RSU income the same way they withhold on a paycheck, commonly at a flat 22% federal supplemental-wage rate for amounts under $1 million (37% above that threshold), plus Social Security and Medicare. Often by automatically selling a portion of the vesting shares to cover the tax bill, a mechanic usually called “sell-to-cover.”

What is double-trigger vesting for RSUs, and how is it different from double-trigger acceleration for options?

These are two different concepts that happen to share the same name, and it’s a common point of confusion. Double-trigger RSU vesting means your RSUs don’t actually deliver shares (or create a tax bill) until both your normal time-based vesting is complete and a liquidity event, an IPO or acquisition, has occurred; it’s a structural feature built into most private-company RSU grants specifically to avoid taxing you on shares you can’t yet sell. Double-trigger acceleration for stock options, by contrast, is a provision that speeds up vesting if a company is acquired and you’re then let go without cause within a set window. An entirely different mechanism, tied to job loss rather than a liquidity event, and only relevant to options, not RSUs.

Why do private companies use options while public companies favor RSUs?

Early-stage private companies typically have low 409A valuations, which keeps strike prices affordable; an employee can plausibly come up with a few thousand dollars to exercise. As a company matures and its valuation rises, that math breaks down: exercising options at a high strike price becomes expensive, and options carry downside risk if the price ever falls. RSUs sidestep both problems, since there’s no purchase price and the shares retain value regardless of price movement (short of the company being worth nothing), which is why later-stage private companies and public companies lean toward RSUs, especially for new hires.

Worked example

Say a private, later-stage company grants a new hire either 1,000 options with a $20 strike price, or an equivalent-value RSU grant, when the 409A valuation is also $20 a share.

• With options: if the company’s value never rises above $20, the options are worthless. There’s no benefit to exercising at or above the current price. If the value later rises to $35, exercising costs $20,000 up front, with a $15,000 taxable spread.

• With RSUs: the employee owes nothing to receive the shares. Once vested (and, if it’s a double-trigger private-company RSU, once a liquidity event also occurs), the full value of the shares at that time is taxed as ordinary income. There’s no strike price cushioning the downside, but also no purchase cost and no risk of the grant being worth literally zero unless the company itself is worthless.

FAQ

Do private companies grant RSUs, or is that only for public companies? Private companies, especially later-stage ones, do grant RSUs, usually with a double-trigger structure that delays delivery and taxation until a liquidity event occurs.

Do I have to pay anything to receive RSU shares? No. Unlike options, RSUs don’t require a purchase. You simply owe income tax on the value of the shares once they’re delivered.

Is double-trigger RSU vesting the same as double-trigger acceleration for options? No, despite the similar name. RSU double-trigger vesting ties delivery to a liquidity event; option double-trigger acceleration ties speeded-up vesting to being let go after an acquisition. They’re separate mechanisms.

Which is worth more, an option or an RSU? Neither is universally worth more. It depends entirely on where the company’s value ends up relative to your option’s strike price. An RSU guarantees some value as long as the company has any value at all; an option can be worth more per share if the company’s value rises substantially, or worth nothing if it falls below the strike price.

Can I have both options and RSUs at the same company? Yes, it’s common for companies to shift from granting options to granting RSUs as they mature, meaning longer-tenured employees may hold options from earlier grants and RSUs from more recent ones.

What to do next

Whether you hold options, RSUs, or both is set by your specific grant agreements, not by company stage alone. Check your own equity documentation. You can model your own numbers for either type at movewealth.io.

MoveWealth is not a broker-dealer, investment adviser, or lender. This is educational content, not financial, tax, or legal advice. Consult a qualified professional about your specific situation.

What happens to my vested options after a layoff?

Vested options generally follow the same post-termination exercise window that applies to any departure, voluntary or not; 90 days is standard, though your company’s plan may specify something different or longer. The involuntary nature of a layoff doesn’t automatically extend this window on its own; whatever window applies to departing employees generally applies to you too, unless your severance agreement specifically changes it.

What happens to my unvested options and RSUs?

Unvested equity is forfeited on your last day of employment, the same as it would be for any other departure, unless a specific acceleration provision in your plan applies. This is true even though a layoff wasn’t your choice. The standard plan language usually doesn’t distinguish between “you left” and “we let you go” for the purposes of what counts as vested versus unvested on your last day.

Does a layoff ever trigger accelerated vesting?

Sometimes, but only if your specific option plan includes a provision that applies. The most common scenario is double-trigger acceleration tied to an earlier acquisition. If your company was acquired and your options include a double-trigger clause, a layoff within the specified post-acquisition window (commonly 9 to 18 months) can be exactly the “qualifying termination” that triggers acceleration of your remaining unvested shares. Outside of that specific acquisition-linked scenario, most standard vesting plans don’t include acceleration for an ordinary layoff.

Do severance agreements ever change my standard equity terms?

Yes, sometimes. A severance agreement is a separate document from your option plan, and companies can, though aren’t required to, offer more favorable equity terms as part of a severance package, most commonly an extended exercise window beyond the standard 90 days. During large layoffs, some companies have voluntarily extended exercise windows for affected employees as a matter of policy, though this isn’t guaranteed and varies considerably company to company. It’s worth reading any severance or separation agreement closely for equity-specific language, since it can differ from what the standard plan document alone would provide.

What if I was laid off before my one-year cliff?

The cliff rule applies regardless of why you’re leaving. If you’re laid off before your first-year cliff date, you generally have zero vested equity, the same as if you’d resigned or been terminated for any other reason. There’s no special exception for layoffs that changes this baseline mechanic on its own.

Worked example

Say you were granted 40,000 options on a standard four-year schedule with a one-year cliff, and you’re laid off at month 20, 8 months past your cliff.

• Vested: 10,000 at the cliff (25%) plus 8 months × roughly 625/month (the remaining 30,000 spread over 36 months) ≈ 15,000 vested options

• Forfeited immediately: the remaining roughly 25,000 unvested options, unless an acceleration clause applies

• Exercise window for the 15,000 vested options: typically 90 days from your last day, unless your severance agreement specifies something different. Check that document specifically, since it may not match the standard plan terms

FAQ

Does getting laid off give me a longer window to exercise my options? Not automatically. The standard exercise window (commonly 90 days) usually applies the same way it would for any departure, unless your severance agreement specifically extends it.

Do I lose my unvested options if I’m laid off? Generally yes, the same as with any departure, unless a specific acceleration clause in your plan applies, most commonly one tied to a prior acquisition.

Is a layoff the same as the “termination” trigger in double-trigger acceleration? It can be, but only if your company was previously acquired and your options include a double-trigger acceleration clause with a window that covers your layoff date. A layoff at a company that hasn’t been acquired doesn’t have this kind of trigger to activate.

Should I expect my company to extend my exercise window during a layoff? Not by default. Some companies have done this voluntarily during broader layoffs, but it’s not standard or guaranteed. Check your specific severance paperwork.

What if I was still within my one-year cliff when I was laid off? You’d generally have zero vested equity, the same as any other departure before the cliff date.

What to do next

The specific numbers and any extended terms are in your grant agreement and your severance paperwork. Read both closely, since severance terms can differ from the standard plan. You can model your own vested-share numbers and exercise costs at movewealth.io.

MoveWealth is not a broker-dealer, investment adviser, or lender. This is educational content, not financial, tax, or legal advice. Consult a qualified professional about your specific situation.

What is a vesting schedule?

A vesting schedule is the timetable that determines how much of your equity grant you’ve earned the right to at any given point, based on your continued employment. It applies to both stock options and RSUs, though what “vesting” gets you differs. For options, vesting means you’ve earned the right to buy shares at your strike price; for RSUs, vesting (combined with any other conditions in the grant) means you’re on track to actually receive shares outright.

What is a cliff?

A cliff is a specific point in your vesting schedule, almost always your first anniversary of employment, before which none of your equity has vested, followed by a chunk vesting all at once on that date. In the standard four-year/one-year-cliff structure, that first-anniversary chunk is 25% of your total grant, reflecting the first year of a four-year schedule vesting all at once rather than spreading it out monthly from day one. After the cliff, the remaining 75% typically vests in equal installments, monthly or quarterly, over the remaining three years.

Why do cliffs exist?

Cliffs exist to protect the company from granting meaningful equity to someone who leaves within the first few months. Without one, an employee who quit or was let go after eight weeks would technically have earned a small sliver of vested equity; with a one-year cliff, that same departure results in zero vested shares, since nothing vests until the full first year is complete.

Do all startups use the same four-year, one-year-cliff structure?

No, though it’s by far the most common default. Some companies use shorter or longer overall vesting periods, cliffs of six months instead of a year, or no cliff at all with vesting starting immediately in small monthly increments. Later grants, often called refresh grants, given to employees after their initial grant, sometimes come with their own new cliff and sometimes don’t, depending on company policy. Your specific schedule is set out in your grant agreement, not assumed from the industry default.

Does vesting mean I automatically own the shares?

Not for options; vesting only means you’ve earned the right to buy the shares at your strike price, and you still have to exercise (pay that price) to actually own anything. For RSUs, vesting is closer to actual ownership, though many private companies add a second condition, a liquidity event like an IPO or acquisition, before shares are actually delivered, meaning “vested” doesn’t always mean “in your hands yet” for RSUs either.

Worked example

Say you’re granted 48,000 stock options on a standard four-year schedule with a one-year cliff. At your one-year anniversary, 12,000 options vest at once (25% of the grant). From there, the remaining 36,000 vest in equal monthly installments of 1,000 options a month over the next 36 months. If you leave the company at month 30 (18 months after your cliff), you’d have 12,000 (from the cliff) plus 18,000 (18 months × 1,000/month), 30,000 vested options total, with the remaining 18,000 forfeited.

FAQ

What happens if I leave before my one-year cliff? You forfeit the entire grant since nothing vests until the cliff date, leaving even one day before it means zero vested shares.

Do all startups use the same four-year/one-year-cliff vesting schedule? No. It’s the most common default, but companies can and do use different lengths, different cliff periods, or no cliff at all. Check your own grant agreement.

Does vesting automatically give me shares? For options, no, vesting only earns you the right to buy shares at your strike price; you still have to exercise. For RSUs, vesting is closer to ownership, though private-company RSUs often require an additional liquidity-event condition before shares are actually delivered.

What happens to my vesting schedule if I get a new grant later? A later “refresh” grant typically runs on its own independent schedule, often with its own new cliff, layered on top of whatever’s left of your original grant’s vesting.

Can a company change my vesting schedule after I’ve started? Generally not unilaterally for equity you’ve already been granted; your vesting terms are part of your grant agreement. Changes to future grants or company-wide policy going forward are a separate matter.

What to do next

Your actual vesting schedule and cliff, including any nonstandard terms, are set out in your grant agreement, not assumed from the four-year default described here. You can model your own vesting timeline at movewealth.io.

MoveWealth is not a broker-dealer, investment adviser, or lender. This is educational content, not financial, tax, or legal advice. Consult a qualified professional about your specific situation.

What actually happens to my options when my company gets acquired?

The acquiring company and your company negotiate specific treatment for outstanding options as part of the deal terms, and that treatment gets spelled out in the merger agreement. There’s no default outcome required by law. The three most common approaches are: cashing out vested options for the difference between the deal price and your strike price, converting your options into equivalent options or shares in the acquiring company (continuing on a similar vesting schedule), or canceling options entirely without payment if the deal price is at or below your strike price. Your company is required to notify option holders of the actual treatment before or at closing. Read that notice carefully, since it overrides any general expectations.

What happens to my vested options?

Vested options are most commonly cashed out at closing, paid as the deal’s per-share price minus your strike price, multiplied by your number of vested shares. Some deals instead convert vested options into shares or options of the acquiring company rather than paying cash, particularly in stock-for-stock mergers or when the acquirer is itself a private company. Either way, vested options almost always retain their value in some form in a normal acquisition. It’s unvested options where the outcome varies more.

What happens to my unvested options?

This depends entirely on whether your option plan includes an acceleration provision, and if so, what kind. Without any acceleration clause, unvested options are typically converted into a new unvested grant in the acquiring company, continuing on the same or a similar vesting schedule as before. You keep the potential value, but you have to keep working to earn it. Some plans include acceleration clauses that speed up vesting specifically because of the acquisition, which changes this outcome substantially (see below).

What is double-trigger acceleration, and does it apply to me?

Double-trigger acceleration is a provision that vests some or all of your unvested options automatically, but only if two separate events both occur: the acquisition itself, and then a qualifying termination of your employment, typically being let go without cause, or resigning for “good reason,” within a set window afterward, commonly 9 to 18 months post-closing. It’s the most common form of acceleration at venture-backed startups today, largely because acquirers want to retain the team they’re paying for, and a provision that vests everyone’s equity the moment the deal closes (called single-trigger acceleration) would undercut that. Check your grant agreement or option plan directly. Not every company includes this provision, and the specific window and percentage accelerated vary.

What if the deal price is below my strike price?

If the acquisition price per share is at or below your strike price, your options are “underwater,” there’s no spread left to pay out, so they’re typically canceled entirely with no compensation, since exercising them wouldn’t make financial sense for anyone. This can happen even at companies that raised money at much higher valuations previously, particularly in a down-round acquisition or a distressed sale, and it applies regardless of how long you’ve worked there or how close you were to fully vesting.

How are cashed-out options taxed?

For NSOs, a cash-out is generally taxed as ordinary income on the full spread between the deal price and your strike price, similar to a normal exercise-and-sale. For ISOs, cashing out generally counts as a disqualifying disposition unless you’d already independently met the one-year and two-year holding requirements before the deal closed, meaning the spread is typically taxed as ordinary income rather than getting long-term capital gains treatment. If your options are instead converted into acquirer equity rather than cashed out, the tax treatment depends heavily on how the deal is structured. This is genuinely complex territory, and it’s worth confirming the specifics with a tax professional once your company communicates the actual deal terms, rather than assuming any general rule applies.

Worked example

Say you have 8,000 vested NSOs with a $4 strike price, and the acquisition prices the company’s shares at $16 each in an all-cash deal.

• Payout: 8,000 × ($16 − $4) = $96,000, before tax

• Tax: taxed as ordinary income in the year of the deal, so at a 32% marginal rate, roughly $30,700 in tax, leaving about $65,300 net

It’s also common for part of the deal proceeds, including employee option payouts, to be held back in an escrow account for a period after closing, often 12 to 18 months, to cover potential claims against the sellers. If your deal includes an escrow holdback, you may not receive the full amount immediately at closing even for a straightforward cash deal, so it’s worth checking whether that applies to your specific payout.

FAQ

Do I automatically get paid out when my company is acquired? Only for vested options, and only if the deal structure calls for a cash payout rather than a conversion into acquirer equity. Check your company’s specific deal communications.

What happens to unvested options in an acquisition? It depends on your option plan. Without an acceleration clause, they typically convert into a new unvested grant on a similar schedule. With double-trigger acceleration, they can vest immediately if you’re let go without cause within a set window after the deal closes.

What if my options are underwater at the acquisition price? They’re typically canceled without payment, since there’s no financial benefit to exercising options priced above what the shares are actually worth in the deal.

Is single-trigger acceleration common? No. It’s relatively rare and generally disfavored by acquirers, since it can accelerate departures right after a deal closes. Double-trigger acceleration is far more standard.

How soon after the acquisition do I get paid? Timing varies by deal, and a portion of proceeds, including option payouts, is often held in escrow for 12 to 18 months, so you may not receive the full amount immediately at closing.

What to do next

The specific outcome for your options is determined by your merger agreement and option plan, which your company is required to communicate to you around the deal. That documentation is the source to rely on, not general patterns like the ones described here. You can model your own numbers at movewealth.io.

MoveWealth is not a broker-dealer, investment adviser, or lender. This is educational content, not financial, tax, or legal advice. Consult a qualified professional about your specific situation.

What is an ISO?

An incentive stock option (ISO) is a type of stock option that can qualify for favorable tax treatment, potentially long-term capital gains rates on the entire gain, rather than ordinary income tax. ISOs can only be granted to employees, not contractors, consultants, or outside board members, and are subject to a $100,000 annual limit (explained below) and other technical requirements under Section 422 of the Internal Revenue Code.

What is an NSO?

A non-qualified stock option (NSO), sometimes called a non-statutory stock option, is the default type of option. Anyone can receive one, including employees, contractors, advisors, and board members, and there’s no special IRS-mandated tax treatment attached to it. The tradeoff for that flexibility is tax simplicity working against you: the spread between your strike price and fair market value is taxed as ordinary income at the time you exercise, regardless of how long you hold the shares afterward.

What’s different about how they’re taxed at exercise?

Exercising an NSO creates an immediate ordinary income tax event — the spread between your strike price and current fair market value gets added to your taxable income for the year, subject to your regular income tax rate and, in many cases, payroll tax withholding. Exercising an ISO doesn’t create ordinary income tax at exercise, but it can trigger the alternative minimum tax (AMT), a parallel tax system that treats that same spread as a preference item, meaning you may still owe real tax at exercise even without a formal “ordinary income” charge.

What’s different about how they’re taxed at sale?

For an NSO, there’s nothing special left to happen at sale beyond standard capital gains treatment: you’ve already paid ordinary income tax on the spread at exercise, so any further gain or loss between your exercise-date value and your eventual sale price is taxed as a short- or long-term capital gain, based on how long you held the shares after exercising. For an ISO, the outcome depends on whether you meet the holding period for what’s called a “qualifying disposition,” selling only after holding the shares for at least one year from exercise and two years from the original grant date. Meet both, and the entire gain from your strike price to the sale price is taxed at long-term capital gains rates. Miss either deadline, a “disqualifying disposition,” and the spread at exercise gets taxed as ordinary income after the fact, largely erasing the ISO’s advantage over an NSO.

Who can receive each type?

Only employees can receive ISOs. Not contractors, consultants, or non-employee board members, who can only be granted NSOs regardless of how core their work is to the company. Employees can receive either type, and many do end up holding both if their company has issued option grants across different periods or under different plans.

What is the $100,000 ISO limit?

The IRS limits how much ISO value can become exercisable for the first time in any single calendar year: only the first $100,000 worth of ISOs (measured using the fair market value at grant, not the strike price) that first become exercisable in a given year actually get ISO treatment. Anything vesting beyond that $100,000 threshold in the same year is automatically treated as an NSO instead, even though it came from the same grant and the same option plan. This mostly affects employees with large grants or accelerated vesting, since it takes a sizable annual vesting tranche to cross the threshold.

Worked example

Say you have 10,000 options with a $2 strike price, and you exercise when fair market value is $12 a share, a $10-per-share spread, or $100,000 total.

• If these are NSOs: the full $100,000 spread is taxed as ordinary income in the year you exercise. At a 32% marginal rate, that’s roughly $32,000 in tax due at exercise, regardless of what you do with the shares afterward.

• If these are ISOs, and you hold for a qualifying disposition: at exercise, the $100,000 spread is an AMT preference item. For a single filer with no other AMT income, using the 2026 exemption of $90,100, that’s roughly $2,600 in AMT due at exercise. Far less than the NSO scenario. If you later sell after meeting both ISO holding requirements, the full gain is taxed at long-term capital gains rates (commonly 15–20%) instead of ordinary income rates, which can mean a meaningfully smaller total tax bill than the NSO path, in exchange for tying up your capital longer and taking on the company-specific risk of holding shares that long.

These are simplified, illustrative numbers. Your actual tax outcome depends on your full income picture, state taxes, and how the AMT credit interacts with your regular tax in future years, so it’s worth running your specific numbers with a tax professional.

FAQ

Can I have both ISOs and NSOs at the same company? Yes. It’s common for a single employee to hold both, especially if grants were issued across different vesting periods or if the $100,000 annual limit converted part of a large grant into NSOs.

What is a disqualifying disposition? Selling ISO shares before meeting both holding requirements, one year from exercise and two years from grant, which causes the spread to be taxed as ordinary income instead of getting long-term capital gains treatment.

Does converting from ISO to NSO happen automatically? Yes, in two situations: when vesting in a calendar year exceeds the $100,000 ISO limit, and when ISO shares are sold in a disqualifying disposition. Both happen automatically under IRS rules, with no separate paperwork required from you.

Do contractors or advisors ever get ISOs? No. ISOs are legally restricted to employees. Contractors, consultants, and non-employee board members can only receive NSOs.

Which is better, ISOs or NSOs? Neither is universally better. ISOs offer the possibility of lower long-term tax if you meet the holding requirements, but come with AMT exposure and more complexity; NSOs are simpler and more predictable but tax the full spread as ordinary income right away. The type you have is generally set by your role and your company’s option plan, not something you choose.

What to do next

Your option grant agreement or your company’s equity plan administrator will show which type you hold. Don’t assume based on general averages. You can model your own exercise costs and estimated tax impact for either type at movewealth.io.

MoveWealth is not a broker-dealer, investment adviser, or lender. This is educational content, not financial, tax, or legal advice. Consult a qualified professional about your specific situation.

Why does a 409A valuation exist?

It exists because the IRS requires companies to set stock option strike prices at fair market value, and a 409A valuation is how that value gets established and documented. If a company grants options below fair market value without a defensible valuation behind it, the options can be treated as deferred compensation under Section 409A of the tax code, triggering immediate income tax on the spread, an additional 20% federal penalty tax, and interest, all falling on the employee, not the company. Getting an independent valuation from a qualified appraiser creates a legal “safe harbor,” a presumption that the price is reasonable, which protects both the company and its option holders from that outcome.

Who performs a 409A valuation, and how?

An independent, qualified third-party appraiser performs the valuation, not the company itself, since the whole point is an outside, defensible opinion of value. Appraisers typically use methods like the option pricing model or the probability-weighted expected return method to allocate the company’s total value across its different classes of stock, then apply a discount for the fact that private company shares can’t easily be sold, arriving at a final per-share value for common stock.

How often is the valuation updated?

At least once every 12 months, or immediately after what’s called a “material event,” most commonly a new priced funding round, whichever comes first. A valuation is only valid for the shorter of those two triggers: even a fresh valuation from three months ago becomes unusable the moment a new funding round closes, since that round provides new, more current information about what the company is worth. Other material events that can trigger an early refresh include an acquisition offer, a major shift in the business, or a significant change in financial performance.

Why is my strike price lower than what investors just paid?

Because your strike price is based on the value of common stock, and investors in a funding round buy preferred stock, which comes with rights common stockholders don’t have, things like a liquidation preference (a guaranteed payout before common stockholders see anything in an exit) and anti-dilution protection. Those extra rights make preferred shares more valuable, so a 409A valuation typically prices common stock at some fraction of the preferred price, commonly somewhere between 10% and 40% at earlier stages, narrowing toward the preferred price as a company approaches an IPO or acquisition, where those preferred-only protections matter less. This gap is expected and required, not a sign of a mispriced valuation.

Does a new 409A valuation change the strike price of options I already have?

No. Your strike price is fixed at the value from the moment your specific grant was priced, and it never changes for options you already hold, even after several new valuations come and go. A higher (or lower) 409A valuation only affects the strike price of new grants issued after that valuation takes effect; it has no retroactive effect on options already on the books. This is a common point of confusion: an employee sometimes assumes a rising valuation means their existing strike price went up too, when in fact it means the opposite: their fixed, older strike price looks even better relative to the new fair market value.

Worked example

Say your company raises a Series B round at $20 a share for preferred stock. The board then commissions a new 409A valuation, which comes back at $5 a share for common stock, a 25% ratio, within the typical range for that stage. A new employee granted options the following week receives a $5 strike price. An existing employee who was granted options a year earlier at a $2 strike price (based on the prior, lower 409A) keeps that $2 strike price unchanged; they now hold options with a larger built-in spread than the new hire, purely because they were granted before the valuation increased.

FAQ

How often does my company need to get a new 409A valuation? At least every 12 months, or sooner if a material event happens first, most commonly a new funding round.

Why is my strike price lower than the price investors paid in the last round? Because investors buy preferred stock, which carries extra rights and protections common stock doesn’t have, making it more valuable per share. Common stock is typically valued at some fraction of the preferred price.

Does a new 409A valuation change my existing option’s strike price? No. Your strike price is locked in at the value in effect when your specific options were granted, and stays fixed regardless of later valuations.

What happens if a company grants options without a valid 409A valuation? The options can lose their safe harbor protection, potentially triggering immediate income tax on the spread plus a 20% federal penalty tax for the option holder.

Who performs a 409A valuation? An independent, qualified third-party appraisal firm, not the company’s own finance team, since the valuation needs to be defensible as an outside opinion of value.

What to do next

Your actual strike price and the company’s most recent 409A valuation are both on your grant paperwork and cap table records, not in general industry ranges like the ones described here. You can model your own numbers at movewealth.io.

MoveWealth is not a broker-dealer, investment adviser, or lender. This is educational content, not financial, tax, or legal advice. Consult a qualified professional about your specific situation.

What does it mean to “early exercise” stock options?

Early exercise means paying your strike price to buy the shares underlying your options before they’ve vested, rather than waiting for each tranche to vest first. Not every company plan allows this. It has to be a feature your specific grant offers, and doing it converts your options into actual shares of restricted stock that still vest on the original schedule and are still subject to forfeiture if you leave.

Why would someone do this?

The main draw is locking in today’s tax cost instead of a potentially much larger one later. If you exercise immediately after grant, when your strike price and the current 409A fair market value are usually the same or very close, the taxable “spread” is at or near zero, which means little or no tax due at exercise. Wait until the shares vest naturally, often years later, and the company’s valuation may have climbed substantially, creating a much bigger spread and a correspondingly bigger tax bill at that point.

What is an 83(b) election, and why does the 30-day deadline matter?

An 83(b) election is a form filed with the IRS telling them you want to be taxed on the spread at the time you exercise, rather than as each tranche of shares vests. You have exactly 30 calendar days from your exercise date to file it, with no extensions and no exceptions for missed deadlines. Miss the window and the election is void. Without a timely 83(b), the IRS treats each vesting date as its own taxable event, measuring the spread using the fair market value on that date rather than the (often much lower) value on your original exercise date, which defeats much of the purpose of exercising early in the first place.

How does early exercise affect QSBS eligibility?

If your company qualifies as a “qualified small business” (broadly, a U.S. C-corporation with aggregate gross assets under a set threshold, $50 million for stock issued before July 4, 2025, and $75 million for stock issued after, under 2025 tax legislation), the holding period for the QSBS tax exclusion under Section 1202 begins on your exercise date if you file an 83(b) election, rather than on each vesting date. That distinction matters because recent legislation changed the QSBS benefit itself: stock acquired after July 4, 2025 qualifies for a tiered exclusion, 50% of the gain excluded after a 3-year hold, 75% after 4 years, and 100% after 5 years, while stock acquired on or before that date still follows the older all-or-nothing 5-year rule. This is a fast-moving area of the tax code, so confirm your company’s QSBS status and the applicable rules with a tax professional rather than assuming eligibility.

What’s the actual risk if I leave before fully vesting?

If you leave before your early-exercised shares vest, the company typically has the right to repurchase the unvested portion. The repurchase price is usually the lower of your original strike price or the shares’ current fair market value, not necessarily what you paid. If the company’s value has risen since your exercise, you’d likely get back what you paid for the unvested shares, roughly breaking even on that portion while keeping any vested shares. But if the value has fallen, such as by a down round or a struggling business, the repurchase could be at that lower current value, meaning you could get back less than you originally paid. Either way, any tax you already paid at exercise isn’t refunded.

Worked example

Say you’re granted 20,000 options at a $1 strike price, and the current 409A valuation also puts fair market value at $1, a typical setup for an early-stage grant. You early-exercise all 20,000 immediately, paying $20,000, with a $0 spread, and file your 83(b) election within 30 days.

• If you stay and the company grows: by the time the shares are fully vested four years later, the 409A valuation has climbed to $9 a share. Because you exercised early with a $0 spread and a timely 83(b), there’s no additional tax due as each tranche vests. The tax event already happened, at a $0 spread, back at exercise.

• Compare that to waiting and exercising all 20,000 only once fully vested, at that same $9 valuation: the spread would be 20,000 × ($9 − $1) = $160,000, creating a real AMT liability. Roughly $18,000 for a single filer with no other AMT income, using the 2026 exemption. (Simplified estimate; your actual number depends on total income.)

• If you leave after 2 years with only half vested, the company could repurchase your 10,000 unvested shares at the lower of your $1 strike or the then-current FMV. So you’re not further exposed on those shares, but you don’t get any upside on them either, and the cash you spent to exercise them is tied up until that repurchase happens.

FAQ

What’s the difference between early exercise and a normal exercise? A normal exercise happens after shares have already vested; early exercise means buying shares that are still subject to future vesting and a company repurchase right if you leave first.

Do I have to file an 83(b) election every time I early exercise? Yes, each early exercise is its own taxable event under Section 83, and each one needs its own timely election within 30 days to get the tax-timing benefit.

What happens to my early-exercised shares if I leave before they vest? The company can typically repurchase the unvested portion, usually at the lower of your original strike price or the current fair market value.

Does early exercising guarantee QSBS tax treatment? No. QSBS eligibility depends on the company meeting the qualified small business requirements at the time of issuance, independent of when or how you exercise; early exercise only affects when your holding period clock starts, not whether the stock qualifies at all.

Can every company’s options be early exercised? No, early exercise has to be a feature specifically written into your company’s option plan and your individual grant. Check your grant agreement or ask your equity administrator.

What to do next

Whether early exercise makes sense depends on your company’s current 409A valuation relative to your strike price, your own risk tolerance for paying cash upfront on shares you might not fully vest into, and your specific tax situation. You can model your own numbers at movewealth.io.

MoveWealth is not a broker-dealer, investment adviser, or lender. This is educational content, not financial, tax, or legal advice. Consult a qualified professional about your specific situation.

Why do options expire after you leave?

Options expire on a set schedule because that schedule is a contractual term the company chose when it wrote its equity plan, not a legal requirement. Most option plans historically set the window at 90 days as a matter of convention, largely because that length lines up with the tax treatment of incentive stock options (more on that below). It’s a company policy decision, and different companies make it differently.

How does the ISO/NSO distinction affect this window?

Incentive stock options (ISOs) and non-qualified stock options (NSOs) are the two types of stock options, and they’re taxed differently. ISOs can qualify for favorable long-term capital gains treatment, while NSOs are taxed as ordinary income on the spread at exercise. This distinction matters for the PTE window because of a rule that catches a lot of people off guard: even if your company gives you years to exercise after you leave, your ISOs automatically convert to NSOs 90 days after your last day, regardless of the extended deadline. The IRS sets that 90-day cutoff for ISO tax treatment specifically. So, your company can extend how long you’re allowed to buy the shares, but it can’t extend how long they stay ISOs.

Do all companies use a 90-day window?

No. The 90-day window is still the most common setup as of 2026, but a growing number of companies have voluntarily extended it. Pinterest, for instance, uses a 7-year window, and some companies, including Loom, offer a 10-year window for employees who’ve been there at least a couple of years. These extensions are a company-by-company choice, often adopted to make departures less punishing for long-tenured employees, and they don’t change the ISO-to-NSO conversion timeline described above. Check your own grant agreement and any separation paperwork. Don’t assume either the 90-day standard or a longer window applies without confirming it.

What happens if I don’t exercise within the window?

If you don’t exercise your vested options before the window closes, they’re forfeited. They go back into the company’s option pool, and you have no further claim to them. There’s no partial credit and no compensation for options you don’t buy; whatever you paid in vesting time simply doesn’t convert into shares. This is different from unvested options, which are forfeited automatically the day you leave, regardless of any exercise window. The PTE window only applies to shares you’d already earned the right to buy.

Worked example

Say you vested 15,000 stock options over three years before deciding to leave your company. Your PTE window is the standard 90 days. On day 91, any of those 15,000 options you haven’t exercised are gone, with no way to reclaim them, regardless of how much the company’s valuation might rise afterward. If you’d exercised 6,000 of them by day 90 and let the rest expire, you’d hold 6,000 shares (subject to whatever exercise cost and tax consequences that purchase created) and forfeit your claim to the other 9,000.

What are the options before the window closes?

A few paths, each with different tradeoffs: exercise all your vested options (full cost and full tax exposure, full upside if the company succeeds); exercise a portion you can afford (smaller cost, smaller potential upside, no risk on the rest); let all of them expire (no cost, but you give up any future value entirely); or ask the company whether it will extend your window (some do, especially for longer-tenured employees, but there’s no obligation to grant this). The cost of exercising, and how people typically cover it, is its own decision; we cover that decision in a separate article.

FAQ

How many days is the standard post-termination exercise window? 90 days is the most common length, though it’s set by each company’s option plan and can vary. Check your specific grant agreement.

Can my company extend my exercise window after I’ve already left? Some companies do grant extensions on a case-by-case basis, but there’s no requirement that they do, and it’s not something to assume will happen.

What happens to unvested options when I leave? Unvested options are forfeited immediately upon departure in nearly all standard option agreements. The PTE window only applies to options you’d already vested.

Do I lose ISO tax treatment if I wait past 90 days to exercise? Yes. Regardless of how long your company’s exercise window runs, ISOs convert to NSOs 90 days after your last day if they haven’t been exercised, which changes how the spread is taxed.

Is the 90-day window the same at every startup? No. It’s a company-specific policy. A small but growing number of companies offer significantly longer windows, sometimes several years.

What to do next

The number that matters is the one in your own option grant and separation documents, not the industry standard described here. If you’re within your window and weighing whether and how to exercise, the cost breakdown and financing tradeoffs are covered in a companion piece, I’m Leaving My Startup — How Do I Pay to Exercise My Stock Options?, and you can model your equity at movewealth.io.

MoveWealth is not a broker-dealer, investment adviser, or lender. This is educational content, not financial, tax, or legal advice. Consult a qualified professional about your specific situation.

What actually happens to my options when my company files to go public?

Nothing changes automatically. Filing Form S-1 with the SEC starts the public review process, but your vesting schedule, strike price, and option terms stay exactly as they were. The only thing that’s changed is that a specific, dated event, the IPO itself (!), is now visible on the horizon, which is often the trigger for people to start thinking seriously about exercising for the first time.

What is a lock-up period, and how long does it last?

A lock-up period is a contractual restriction, negotiated between the company and its underwriters, that prevents employees and other insiders from selling shares for a set window after the IPO. The industry-standard length is 180 days, though agreements can run anywhere from 90 days to a full year, and the SEC doesn’t mandate any particular length. Some companies now use staggered lock-ups instead of a single hard date, releasing a portion of shares early based on triggers like earnings reports or the stock trading above a certain price for a set number of days, rather than unlocking everything at once.

What is a quiet period, and is it the same thing as a lock-up?

No. A quiet period restricts what the company can say publicly, while a lock-up restricts what you can sell. The SEC’s quiet period limits the company (and often its employees) from making public statements that could be seen as promoting the stock before and shortly after the IPO, generally lasting a few weeks around the pricing date. It has nothing to do with your ability to exercise options. It manages communications, not trading, though your company’s own insider trading policy may separately restrict employee stock transactions during this window regardless.

Should I exercise before the IPO prices, or wait until after?

Both paths are available if your options are already vested and you’re not under a company-imposed restriction, and each carries a different cost. Exercising while the company is still private means paying your strike price against the company’s most recent 409A valuation, an independent appraisal of the private stock, typically lower than what the IPO ultimately prices at. Waiting until after the IPO means exercising against the public offering price instead, which can be substantially higher, meaning a bigger tax bill for the same shares. And you would still be locked up and unable to sell for months either way.

Does the IPO change how my options are taxed?

The IPO itself doesn’t change the tax rules, but it does change the numbers that go into them. Once the company is public, the 409A valuation process ends. Expensive independent appraisals are no longer needed, since the market sets the price directly. For incentive stock options (ISOs), whether you exercise before or after the IPO changes the “spread” (the gap between strike price and fair market value) that counts as alternative minimum tax (AMT) income, and a higher post-IPO price generally means a bigger AMT bill for the same number of shares.

Worked example

Say you have 10,000 vested ISOs with a $3 strike price. The company’s last private 409A valuation was $18 a share, and the IPO ends up pricing at $30 a share.

• Exercise cost is the same either way: 10,000 × $3 = $30,000

• Exercising before the IPO (against the $18 valuation): AMT spread = 10,000 × ($18 − $3) = $150,000

• Exercising after the IPO prices (against the $30 price): AMT spread = 10,000 × ($30 − $3) = $270,000

For a single filer with no other AMT income, the difference in spread, $120,000, works out to roughly $30,000 more in AMT owed for exercising after the IPO instead of before, using the 2026 AMT exemption and rate. And in both cases, the shares are locked up and unsellable for months regardless of when you exercised. (This is a simplified estimate. Your actual AMT depends on total income, filing status, and other preference items, so it’s worth running your specific numbers with a tax professional before deciding.)

What should I actually watch for during this period?

A few dates matter more than the IPO date itself: the actual pricing date (when the offering price is set, often the night before trading begins), the lock-up expiration date (when you’re first legally able to sell), and any staggered early-release dates your company’s lock-up agreement includes. It’s also worth knowing that lock-up expiration doesn’t mean unrestricted trading forever after. Public companies impose their own recurring blackout periods around quarterly earnings, and employees with material non-public information can use a Rule 10b5-1 trading plan to schedule sales in advance and stay compliant with insider trading rules.

FAQ

How long is the lock-up period after an IPO? 180 days is the industry standard, though agreements range from about 90 days to a year, and some companies release shares in stages rather than all at once.

Can I sell my shares as soon as the company goes public? No. Even after the stock begins trading, employees and other insiders are contractually barred from selling until the lock-up period ends. Usually 180 days later.

Does filing an S-1 mean the IPO will definitely happen? No. Companies can delay, withdraw, or restructure their offering after filing. An S-1 is a stated intent, not a guarantee.

What is a quiet period, and how is it different from a lock-up? A quiet period limits what the company can publicly say around the IPO; a lock-up limits what you can sell. They run on different timelines and restrict different things.

Will my vesting schedule change because of the IPO? No, vesting continues on its original schedule. The IPO doesn’t accelerate or otherwise alter vesting unless your specific agreement says it does (some acquisition agreements include acceleration clauses, but a standard IPO typically doesn’t).

What to do next

The specific numbers that matter: your strike price, the current 409A valuation, and your company’s actual lock-up terms are in your grant agreement and any IPO-related paperwork the company sends you, not in general industry averages. You can model your own exercise cost and estimated tax impact with MoveWealth.

MoveWealth is not a broker-dealer, investment adviser, or lender. This is educational content, not financial, tax, or legal advice. Consult a qualified professional about your specific situation.

Shareholders cover this with cash, a personal loan, or non-recourse financing from a specialty firm, and each comes with a different cost. This post walks through what exercising costs actually, the ways people pay for it, and what each option gives up in return.

What happens to my options when I leave?

Most companies give departing employees 90 days from their last day of work to exercise vested options, after which unexercised options are forfeited. A smaller but growing group of companies, such as Pinterest, Coinbase, and Kickstarter, have extended this window to as long as 7 or 10 years, so the first thing to check is your own option grant and the company’s current policy, not the industry norm.

One detail that trips people up: even if your company has an extended exercise window, your ISOs still convert to non-qualified stock options (NSOs) 90 days after you leave, because that conversion is an IRS rule, not a company policy. You keep the extended window to buy the shares, but you lose the ISO tax treatment (more on why that matters below) unless you exercise within the standard 90 days.

What does it actually cost to exercise?

Simply put, exercising costs your strike price multiplied by the number of vested options you’re purchasing. You can find those fixed details on your grant. The variable, and often larger, cost is tax. If you hold ISOs, the gap between your strike price and the current fair market value (called the “spread”) can trigger the AMT, a separate tax calculation that adds back certain items most people never think about.

Your strike price comes from a 409A valuation, an independent appraisal of your company’s common stock that sets the price at which you can buy your shares. As your company raises more money and its valuation climbs, the 409A valuation typically rises too, which means the spread between what you pay and what the shares are “worth” on paper grows the longer you wait to exercise.

For 2026, the AMT exemption is $90,100 for single filers and $140,200 for married couples filing jointly, meaning your first chunk of AMT income each year isn’t taxed at all. Above that, AMT is calculated at 26% (28% on larger amounts), and the exemption itself starts shrinking once your AMT income passes $500,000 single or $1,000,000 joint. If you exercise NSOs instead of ISOs, there’s no AMT, but the entire spread is taxed as ordinary income at the time you exercise, which is its own upfront cost.

Worked example

Say you’re leaving a Series D company after four years. You have 20,000 vested ISOs with a $2 strike price, and the current 409A valuation puts common stock at $14 a share.

• Exercise cost: 20,000 × $2 = $40,000

• AMT spread: 20,000 × ($14 − $2) = $240,000 added to your AMT income for the year

• Rough AMT owed: if this is your only AMT preference item and you’re a single filer, $240,000 minus the $90,100 exemption leaves $149,900 taxed at 26%, about $39,000

The total cash needed to exercise and cover the tax bill is roughly $79,000, before you know whether the company will ever go public or get acquired. (This is a simplified estimate. Your actual AMT depends on your full income, filing status, and deductions, so it’s worth running through tax software or a CPA before you commit.) The AMT you pay does become a credit you can use against future regular tax bills, but only if and when your income allows you to use it, which can take years.

What are the ways people pay for this?

Cash or savings. No interest, no fees, no strings, but it’s real money at risk. If the company fails or never has a liquidity event, both the exercise cost and any AMT paid are gone, with only a future tax credit or capital loss as partial consolation.

A personal loan, HELOC, or margin loan. These are recourse debt where you owe the money back on schedule regardless of what happens to the stock. Personal loans for this purpose are also often capped around $100,000, which may not cover a larger exercise.

Non-recourse financing. A specialty finance firm advances you cash to cover the exercise cost, and sometimes the tax bill, in exchange for a cut of your proceeds if and when the shares become liquid. If there’s no exit, you typically owe nothing back (that’s the “non-recourse” part). The tradeoff is cost: once fees, interest, and the firm’s share of the upside are added up, these arrangements commonly run 20–50% of what your shares turn out to be worth, taken off the top before you see anything. For a small exercise, that can cost more than a personal loan would; for a large one you couldn’t otherwise afford, it can be the difference between keeping equity and losing it.

Partial exercise. Nothing requires you to exercise every vested share. Buying a portion you can afford in cash, and letting the rest expire, caps both your cost and your risk.

How do these options actually compare?

Cash:

1. What it costs you: The cash itself, tied up for years

2. What happens if the company fails: You lose the cash (partial offset via AMT credit or capital loss)

Personal loan / HELOC:

1. What it costs you: Interest, and it's due regardless of outcome

2. What happens if the company fails: You still owe the loan

Non-recourse financing

1. What it costs you: ~20–50% of eventual share value in fees and upside share

2. What happens if the company fails: You typically owe nothing back

Partial exercise:

1. What it costs you: Smaller cash cost, smaller potential upside

2. What happens if the company fails: You lose only what you put in

No version of this’s free. Cash is cheapest if the company succeeds and most expensive if it doesn’t. Non-recourse financing flips that: more expensive if the company succeeds, but it caps your downside if it doesn’t.

What if I can’t afford to exercise at all?

A few options short of finding tens of thousands of dollars in 90 days: ask the company directly whether it will extend your exercise window (some do, especially for longer-tenured employees, though there’s no obligation to say yes); exercise the portion of your vested shares you can afford in cash and let the rest lapse; or, if your options have real value and a company-approved secondary market exists, look into whether you can sell a portion of shares to cover the cost of exercising the rest.

FAQ

How long do I have to exercise stock options after I leave my job? Most companies give 90 days from your last day of employment. Some extend this to several years. Check your specific option agreement and company policy rather than assuming the industry standard applies.

Do I have to pay AMT when I exercise ISOs? Only if the spread between your strike price and current fair market value, combined with your other income, pushes you above the AMT exemption ($90,100 single / $140,200 married filing jointly for 2026). Below that, there’s typically nothing owed.

What happens to unvested options when I leave? Unvested options are forfeited when you leave, in almost all standard option agreements. Only vested shares are subject to the exercise decision described here.

Is non-recourse financing considered a loan for tax purposes? It’s generally structured to avoid being treated as a loan, which is part of why it doesn’t require monthly payments or personal collateral, but the tax treatment depends on the specific contract structure, and it’s worth having a tax professional review any agreement before signing.

Can I use a 401(k) loan or margin loan to exercise options? Both are possible in some cases, and both are recourse debt where you owe the money back on its own schedule regardless of what happens to your shares, separate from whatever happens with the company.

What to do next

The math in this article is not specific to your grant, your other income, and your company’s current 409A valuation, so the numbers in this post are illustrative, not your numbers. You can model your own exercise cost, estimated AMT, and financing tradeoffs at movewealth.io.

MoveWealth is not a broker-dealer, investment adviser, or lender. This is educational content, not financial, tax, or legal advice. Consult a qualified professional about your specific situation.