Decoding ISOs, RSUs, and NSOs… Oh My!
Money Tree Investing
Intro
This chapter explores the complexities of equity compensation, focusing on types like RSUs, ISOs, and NSOs. The speakers share insights on vesting periods, tax implications, and the importance of strategic planning to help employees navigate their equity offerings effectively.
Josh Radman joins us today to discuss a little discussed topic on Money Tree Podcast: Decoding RSU, ISO and NQ SOs. He also shares how government programs and how they impact our labor market. He shares an example from local Broogers, which struggled to find staff and often received resumes from unemployable candidates. Josh also touches on how employment data has been revised to show many jobs are part-time or within the government, driven by new regulations. Shifting gears, Josh explores the idea that large AI models, like ChatGPT, might be throttled to prevent them from predicting the future, potentially disrupting markets. He also highlights the critical need for clean, reliable data for AI to function properly, as current government data is often inaccurate or manipulated.
Today we discuss...
- Josh Radman shares his background, from General Mills to tech companies like Walmart e-commerce, where he encountered confusion around equity compensation.
- How his frustration with understanding ISOs, RSUs, and NSOs led him to found Presidio Advisors, a firm focused on helping millennials with equity compensation.
- He emphasizes the importance of balancing tax considerations with investment risk and prioritizing financial goals.
- Radman discusses regret minimization as a tool for decision-making, helping clients navigate the risks of equity compensation.
- Companies often fail to educate employees about equity compensation due to legal concerns, leaving employees to navigate complex tax and financial decisions.
- The complexity of ISOs, NSOs, and RSUs requires advanced planning and understanding, especially when managing liquidity events like IPOs.
- How long-term capital gains tax rates are preferable (0%, 15%, or 20%) compared to ordinary income tax rates (up to 37%).
- Employees often face a limited post-termination exercise period (typically three months) to exercise stock options after leaving a company.
- It’s important to assess short-term, mid-term, and long-term cash needs when considering exercising stock options.
- Restricted Stock Units (RSUs) are taxed as ordinary income upon vesting without requiring cash outlay to exercise.
- A common misconception is that you must hold RSUs for a year to achieve optimal tax treatment; this is not necessary.
- Employees often underestimate total exposure to their company’s stock due to both explicit and implicit risks.
- Cognitive biases, such as the endowment effect, can lead individuals to overvalue their RSUs and resist selling.
- Market returns are skewed, with a small number of companies generating significant returns; diversification is essential to mitigate risk.
For more information, visit the show notes at https://moneytreepodcast.com/decoding-rsu-iso-nqso-josh-radman-648
Today's Panelists:
- Kirk Chisholm | Innovative Wealth
- Barbara Friedberg | Barbara Friedberg Personal Finance
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