Articles by Oakleigh Wealth
Can I make a “Mega Backdoor Roth” Contribution?
Say you have maxed out your pre-tax IRA and 401(k) contributions (or Roth IRA and Roth 401(k), if current tax rates are lower) and you still have the ability to save more, you don't need liquidity and want to do it as tax efficiently as possible.
In certain cases, you may be eligible to make a Mega Backdoor Roth contribution and contribute tens of thousands more to your Roth IRA, regardless of your income level.
Equity Compensation: opportunities, risks, biases, and taxes
Long the domain of only the C-suite and key employees, equity compensation is increasingly used to motivate and retain younger and mid-level employees of the leanest startups to the largest public and private enterprises.
But, while these programs offer the potential for significant wealth accumulation, they also increase the level of risk the employee and her family are exposed to should the company take a turn for the worse. Armed with the knowledge of how these programs work and how they fit within your overall financial plan, you can take advantage of them from a position of clarity and security.
Stock Options: ISOs and NSOs
Stock options give the recipient the right, but not the obligation, to purchase shares of company stock at a predetermined price for a certain period. If the price of the company stock increases, the option holder will be able to purchase shares at a lower price than the current market price once the options vest (or the plan may allow for early exercise). Stock options have a lot of financial leverage, meaning if the stock goes up a lot you can receive a huge amount of value.
Employee Stock Purchase Plans
Employee Stock Purchase Plans give participants the chance to buy company stock at a discount of up to 15% and are funded with regular paycheck withholdings. At the end of the offering period, you can sell the shares and lock in a nearly “risk-free” profit that will be taxed just like a cash bonus, or if you hold the shares, you may become eligible for more favorable capital gains treatment for a portion of the gain (assuming there are gains!)
Restricted Stock Units (RSUs)
RSUs are one of the simplest and most common forms of equity compensation. They are essentially a promise of a given quantity of stock at a future date. Once the shares are vested and taxes are accounted for, you own the company stock just as if you had purchased it on your own. The key question to ask yourself when deciding whether to hold the shares or sell them immediately is this: “If I got a cash bonus instead, would I use it to buy shares in my company?” If not, that’s a good indication that you should just cash out now, or as the Steve Miller Band put it, “Go ahead, take the money and run!”
