Should you exercise stock options after leaving your company?
3 min
Tim’s a CFP® at Secfi. He specializes in helping tech professionals navigate the complexities of equity compensation and integrate it into their holistic financial plans.
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Tim’s a CFP® at Secfi. He specializes in helping tech professionals navigate the complexities of equity compensation and integrate it into their holistic financial plans.
Should you exercise stock options after leaving your company?
If you recently left or are planning to leave a startup with vested stock options, you'll be faced with an important decision: Should you exercise your stock options after leaving the company?
You'll need to act quickly, because you may only have 90 days to exercise before you lose them. During that time, you'll need to confirm how many options you can exercise, calculate the strike price and potential taxes, and decide whether owning the shares is worth putting your savings at risk.
And yes, you may need to figure all this out while starting a new job, looking for work, or recovering from a layoff. Excellent timing.
At Secfi, we believe that if you pour your heart and soul into growing a company and want to become a shareholder, you should have the tools and financing available to do so.
In this article, we'll cover:
Note: Whether you should exercise stock options after leaving your company depends on factors that are personal to your situation. Try our free AI equity assistant Maeve to model different exercising scenarios.
When you leave a company, you'll usually keep the stock options that have already vested. Any unvested options are generally forfeited.
But keeping your vested options doesn't mean you automatically own shares. You still need to exercise them, which means paying the strike price and any applicable taxes, before your post-termination exercise window closes.
The 90-day post-termination exercise (PTE) window is the period you have to exercise (i.e., pay) for your vested incentive stock options (ISOs), or else you lose them. Sometimes your actual deadline will be shorter or longer, so check your stock option agreement and equity portal as soon as possible to confirm.
We often call it the "90-day oh sh*t" window because there's generally a race to figure out:
The total cost can often catch people off guard. You may need enough cash to cover both the strike price and taxes, depending on the type of options you hold and the company's current fair market value.
If you don't have enough cash, or aren't comfortable taking that risk, non-recourse financing can help you exercise your options. Your personal assets aren't at risk like a traditional loan, and you only pay if your company has a successful exit.
But before we talk about financing options, there's another important consideration when leaving your company.
Even if your company extends the 90-day exercise window, your ISOs will treated as non-qualified stock options (NSOs) for tax purposes if you exercise them later.
Most startups use a 90-day post-termination exercise period because of IRS rules around incentive stock options (ISOs) tax treatment after employment ends.
While some companies have challenged the idea that employees should lose their vested options after only 90 days and introduced longer exercise windows, extending your company's deadline doesn't also extend the federal ISO tax deadline. You may retain the right to exercise your vested options, but they'll generally be treated as NSOs for tax purposes if you exercise them more than three months after leaving.
ISOs carry major tax benefits because you can turn everything north of your strike price to capital gains (a better tax rate) if you meet the holding requirements. So when they convert into NSOs, you lose this substantial tax benefit.
Fortunately, we built a special AI equity assistant, Maeve, to help you work out what you'd owe. The two option types are taxed differently: ISOs can trigger alternative minimum tax (AMT), while NSOs create ordinary income tax at exercise. Plug in your specific situation, or connect directly via Carta, and Maeve can help you figure out your options if you're leaving your company.
For Illustrative Purposes only. Actual results may vary and there is no guarantee of any particular result.
So... you've done the math with Maeve and it turns out that you'll have to use all your savings to exercise your options. Or, you can't afford it at all. And you're worried you'll make a mistake. We hear this all the time, unfortunately. That's part of the reason that 68% of valuable, vested stock options go unexercised.
It's sensible to be hesitant because putting a big portion of your money into one company isn't always the best investment.
Even if you're optimistic that your company will perform well in the future, there are no guarantees when or if there will be a successful IPO or exit. Putting your cash into a more diversified portfolio could balance your risk or earn similar (or better) returns.
But that doesn't mean you have to give up on owning your stock options. You worked hard for your company, and it's worth exploring how you could participate in its upside if it performs well.
While in some cases you could get a traditional loan to exercise your stock options after leaving your company, it comes with major downsides:
That's the kind of situation most people would prefer to avoid, and that's where non-recourse financing comes into play.
If you're an employee of a high-growth startup that is planning an exit in the next few years, you may qualify for non-recourse financing.
This means that we can help you fund the cost of your options exercise (including taxes) and you wouldn't need to pay us back unless your company exits. And there's no need to sell your shares on the secondary market. If your company never has an exit, you still don't need to pay us back.
If that sounds too good to be true, we wrote a whole article outlining how it works: How Secfi financing works – our business model explained.
Here's an example that compares three choices you could make with the same stock option grant:
For Illustrative Purposes only. Actual results may vary and there is no guarantee of any particular result.
Using your own money produces the highest potential profit at every exit value shown. But you'd need to pay $212,500 upfront to exercise, and you could lose it all if the company doesn't have a successful IPO.
With Secfi financing, you don't need to use any of your cash to cover that $212,500 yourself. But your potential profit is lower because Secfi receives an agreed share of the upside after a successful exit.
Waiting and exercising later as NSOs also requires no upfront exercise cost in this example. However, it produces the lowest potential profit across every exit value shown because of the different tax treatment.
At a $10 billion exit, for example, your modeled profit would be:
None of these are bad outcomes, but there's a lot less risk to your current cash flow if you go with non-recourse financing. And if the company doesn't have a successful IPO, you don't lose any of your cash.
For Illustrative Purposes only. Actual results may vary and there is no guarantee of any particular result. Please consult your tax advisor regarding your particular situation.
Our co-founders couldn't exercise their options when leaving former companies because the tax bills were out of reach. They created Secfi as a place where fellow startup employees wouldn't be in the same situation, so you can understand and act on your equity when the time comes.
While it's often better to plan ahead, sometimes we can't predict when we're leaving our company. Compressing complicated equity planning into a short (often 90 day) window can be stressful, but we're set up to help you understand the numbers quickly, so you can make a decision within the timeframe your company set.
Here's why employees and executives at companies including Uber, Anthropic, and Figma work with Secfi.
Maeve, Secfi's free AI equity assistant, helps you model what exercising could look like before your post-termination window closes. Maeve was purpose-built for equity, and if you use Carta, you can connect your data in seconds and begin checking scenarios right away. Otherwise, you can scan documents or manually enter grant and tax information to get detailed answers specific to your situation.
We find people often go to Maeve when they're curious about taxes, including AMT and potential AMT credits, because it's quite difficult to calculate on your own (even if you're financially savvy and can build an impressive spreadsheet).
Maeve can also help you compare:
Even if you do decide to go with your own spreadsheet and a combination of online calculator tools, Maeve can be a good way to quickly double-check your outcomes and assumptions.
[Maeve block, ideally from this page which has great AMT examples: https://secfi.com/tools/alternative-minimum-tax-calculator]
For eligible employees, Secfi may be able to finance the strike price and applicable taxes through non-recourse financing. In some cases, you may also be eligible for some cash to use at your discretion. We've provided over $790 million in financing as of date to help startup employees own their options, more than any other financing provider of this type.
Depending on the circumstances around leaving your company, having enough liquidity can be really important. Non-recourse financing doesn't tie up your cash in a large payment to exercise, or require monthly payments like a loan. It also doesn't negatively impact your debt-to-income ratio like a traditional loan would.
If your company has a successful exit, you repay the amount financed plus the agreed fee. If the company doesn't exit or your shares become worthless, you generally don't have to repay the financing, and your other personal assets like your home or car aren't used as collateral.
When considering financing, let us know as early as possible if your exercise deadline is approaching. For companies Secfi has worked with before, financing may sometimes be arranged within a matter of days. If your company still needs to be assessed, the process can take longer. Either way, our equity strategists will let you know whether your deadline is realistic so you can plan your next step.
Our team can also help eligible shareholders explore a secondary sale. While there can be a lot of moving parts and no guarantees you can sell your shares within your exit window, we can help you understand the trade-offs.
You may still need help even if financing isn't right for you. Secfi's Wealth team works with startup employees and executives to plan your taxes, liquidity, and how everything fits into your wider financial goals.
Together, we'll create a personalized roadmap so you're on track and in control. Secfi Wealth is a fiduciary advisory firm, so our advisors are legally required to put your interests first when providing advice.
If you have an existing tax or financial advisor, we can work alongside them to add the speciality equity and tax perspective that comes from working with stock options every day.
For HR and leadership teams, Secfi can provide company-wide equity education. This gives employees somewhere to turn during layoffs or other transitions, when short exercise windows can create urgent questions around taxes, deadlines, and how to pay.
When Confluent downsized its team, technical trainer Joe suddenly found himself with 90 days to figure out if (and how) to exercise his stock options after leaving the company. Fortunately, Confluent had his back, and walked him through his options, including suggesting he explore non-recourse financing.
Joe might have been able to cover the cost of exercising by selling some other investments and using his savings, but "I wasn't willing to sell those assets when I didn't know what my next position would be."
He also could've walked away from his equity, but he felt strongly that keeping his shares could shape his family's future. "Investing has the ability to create generational wealth," said Joe. "This is a huge responsibility because if I do it right, it impacts my children and their children."
Joe looked for ways to finance both the cost of exercising his stock options plus the potential tax bill, and Secfi emerged as a top contender. Especially since some other companies he spoke to had contingencies that made Joe less comfortable.
Luckily, Joe's bet paid off. Confluent had a successful IPO not long after he exercised his options.
Read the full article: Why Joe financed his stock options exercise after leaving Confluent with non-recourse funding.
Testimonials are specific to an individual Client's experience and may not be representative of all Clients. Unless otherwise indicated, Clients offering a Testimonial do not receive compensation and their statement does not present a conflict of interest.
Exercising stock options may be one of the biggest financial decisions of your life when you factor in the taxes and possible outcomes. But there's no need to shy away from it, even when it gets complicated.
Secfi was created to help employees and executives make tricky decisions like whether or not to exercise stock options after leaving your company. Try Maeve today or get in touch with our team if you're facing a tight window and want help working out what to do next.
When you quit, you'll generally keep the stock options that have already vested, while any unvested options are forfeited. However, vested options are still options rather than shares. You need to exercise them before your post-termination exercise period ends if you want to own the underlying stock.
Your exact deadline depends on your company's equity compensation plan and grant agreement. Check both as soon as possible because the window may be shorter or longer than the commonly used 90-day period.
Many companies give former employees around 90 days to exercise vested stock options, but your actual post-termination exercise period is set by your company's plan documents. Some companies offer an extended window, while others may give you less time.
There can also be a separate tax deadline for incentive stock options. To retain ISO treatment, you generally need to exercise within three months after your employment ends. Exercising later may still be possible under your company's plan, but the options will generally be taxed as non-qualified stock options.
Secfi's AI equity assistant, Maeve, can help you model exercising on different dates and compare potential exercise costs, taxes, and AMT exposure before your deadline. Maeve supports modelling for ISOs, NSOs, RSUs, and shares.
It depends on your grant agreement.
If your company's post-termination exercise period is 90 days, your vested options will expire when that period ends. You would then lose the right to buy the shares.
If your company allows you to exercise after 90 days, vested ISOs may remain exercisable but lose their ISO tax treatment. They would usually be treated as NSOs when exercised, which can change when and how you owe taxes.
That's why you should confirm both your company deadline and the potential tax consequences rather than assuming the same 90-day rule applies to every part of your equity compensation.
Possibly. Leaving the company doesn't remove the normal tax consequences of exercising stock options.
For NSOs, the difference between the shares' fair market value and your exercise price is generally treated as compensation income when you exercise. It may also be subject to applicable payroll taxes.
ISOs generally don't create ordinary income for regular federal income-tax purposes at exercise, but the spread may count towards the alternative minimum tax calculation. The timing of your exercise and any later sale can also affect whether you qualify for favorable ISO tax treatment.
For a private company, estimating the bill usually requires your option type, strike price, current 409A valuation, number of options, income, filing status, and state. Secfi's AI equity assistant Maeve can use your grant details to compare scenarios, but you should speak with a qualified tax professional before acting.
You may be able to pay with cash, exercise only part of your vested grant, use traditional financing, arrange an eligible secondary transaction, or apply for non-recourse financing.
For eligible private-company employees, Secfi's non-recourse financing can help cover the strike price and associated taxes without requiring monthly repayments or putting other personal assets on the line. Repayment is generally required only after a successful liquidity event, such as an IPO or acquisition. If the shares become worthless, repayment typically isn't required.
We recommend you start by using Maeve to estimate the full cost and compare how exercising all, some, or none of your options could affect your finances. You can then speak with Secfi's team about financing eligibility and whether the timeline works with your post-termination exercise period.
The tool shown here uses artificial intelligence and is for illustrative purposes only and not necessarily indicative of future results and there is no guarantee that similar results can be achieved. The information provided by the tool is not professional advice and is not intended by Secfi, Inc., its affiliates, and Secfi representatives, to be deemed as investment, legal, tax or other professional advice or recommendations of any kind, or to form the basis of any decision to do or to refrain from doing anything. Secfi does not review the accuracy or completeness of the information provided to us within the tool.