Welcome to the 57th edition of the Tech Financial Planning (TFP) newsletter.

I get a lot of questions about trying to understand your equity at E-Trade, which is fair. It’s very confusing. Words like potential value, current value, total value - it’s not super clear. And some views are helpful, and some aren’t.

So candidly, I don’t use the website until it’s time to sell or exercise. When I work with clients, I have them send me this CSV (you can get it by logging in to E-Trade, then select your Stock plan, go to "holdings", then "view by status", "download", "download expanded".)

Today I want to walk you through what I look for and the flow I go through. At a high level, this report tells me 3 really important things about your equity.

What you have already
What you are able to exercise
What is unvested

Our Situation

Meet Bill.

Bill is a Procore employee who’s been at the company about 9 years. He has a combination of different equity types - stock options, ESPP, and RSUs. Now it’s important to not that not all of this will apply to you, particularly if you joined in the past few years.

Let’s dive in.

Here's a video overview of what I look for and the flow I go through

What You Have Already

To simplify, these are the shares that Bill owns already. He can sell them, hold onto them, whatever - they are his.

We can see that Bill has about 8,250 shares, worth over $550,000 at the current price of $67.98 / share (as of 6/2/2024). This is a mix of stock options he’s already exercised, RSUs and Performance shares, and ESPP.

There’s a lot of detail in this sheet (and I’ve hidden some of the details to make it easier to understand, but here’s some important pieces of information I’m looking at.

When Bill Got The Shares

I want to know when Bill acquired the shares, whether that be Bill exercising stock options, purchase dates for ESPP, or when the RSUs / PSUs vested. This can tell us a lot and where his specific shares are at:

For his RSUs and PSUs, whether they are held short term or long term
For his Incentive Stock Options (ISOs), if he sells, if they will be a qualifying disposition or not
Same for ESPP (although the required holding periods for qualifying disposition are different)

Cost Basis

This helps us start to figure out the potential tax impact.

We can figure out the gains and losses for his RSUs
With his ISOs, we want to look at both the exercise price and the value at exercise. This helps us start to figure out the tax impact for both regular capital gains and AMT capital gains.
- An important note - If you already paid AMT and have an AMT credit, this calculation may let you use some of that credit to cover the tax you already paid.
For his ESPP shares, we can look at the dates and discount to figure out the actual cost basis for the ESPP shares.
- ESPP shares are tricky! You have to look at the timeline and know the offering date, purchase date, and date of final sale of the shares. All 3 of these together impact how much is taxed as ordinary income and how much is taxed as long term capital gains

Different columns apply to different types of equity. For example, the exercise price and value at exercise are really important for Bill’s stock options, but don’t apply to his RSUs (hence the $0.00 value)

An important note here: the current value is not the “walk away” value. Put another way - if Bill sold all 8,253 shares, he probably wouldn’t walk away with $~561,000. Depending on cost basis, quantity sold, and a whole host of other factors, there could (probably will be) some tax.

But E-Trade won’t tell you that when you sell! And candidly, how / why should they? They don’t know all this information. But this highlights the importance of working with a financial advisor and tax preparer to have an idea of the potential tax implications.

What Bill Is able to exercise

These are stock options that Bill has the right, but not the obligation, to exercise. Now importantly, this can look really different if you are at a public company vs a private company. But in our case here, Bill is working for a public company.

Bill has 9,500 options to exercise - 7,000 ISOs and 2500 NQSOs.

Some important information to identify:

I hid certain rows and columns and consolidated information to make it easier to display / digest, but it’s really important!

Option Type

We want to know how many are incentive stock options and how many are non qualified stock options. This is important because the tax treatment is different between each type.

Exercise Cost

Simply - how much does it cost to purchase (exercise) the options - they aren’t free! We can see that each tranche (or grant) has a different cost - some are cheaper than others. But importantly, this doesn’t include the taxes (if applicable) - simply the purchase cost.

We can see below that it will cost Bill over $100,000 to purchase the options. There’s different ways you can approach the purchase - use cash, sell to cover, etc.

Expiration date

Options don’t last forever! Typically they expire 10 years from the grant date. In our situation here, Bill has options that expire in May 2027, August 2028, and May 2029.

Because the cost to purchase these options (ranging from $0.41 / share to $22.63 / share) is significantly below the current price ($67.98 / share), Bill will almost certainly want to exercise these before they expire.

number of options

For each grant, how many does he still have to exercise?

so What Does This all mean?

All of this information combined helps to start the discussion around exercise strategy. A lot of this has to be tied back to Bill’s life and goals and values and financial situation. But that information, combined with the stock option info, can start to inform the strategy.

It must be noted that a lot of this is subject to change. While we can put a rough plan in place, a lot could change in the coming 12-24 months. Here’s three things that could happen that could completely shift the strategy (some are in Bill’s control, some are not):

Bill decides to leave the company (or gets laid off), which means he might exercise much quicker than anticipated.
The stock price changes significantly (either up or down)
Tax law changes (if the Tax Cuts and Jobs Act sunsets in 2026, this could lead to significant changes)

What Is Unvested

These are shares that have not vested yet. In Bill’s case, these are shares that he will earn, provided he meets the time and/or performance requirements.

In this situation, Bill has over $175k of stock that will vest over the next 4 years. While I’ve hidden some of the specific details and vests for ease of understanding, this represents almost $45,000 of extra compensation each year at the current share price.

We can see that right now, he has 4 different grants, but depending on his role and the company, he could see refresher awards in the future that allow him to earn even more stock.

We also want to understand the vesting dates, which are the specific dates that the shares will be “released” to you / Bill. For Procore employees, they are:

February 20
May 20
August 20
November 20

Last, it’s important to remember that this is the “gross” value of the awards. You (and Bill) will be taxed on this as income. Typically the company will sell an equivalent amount of shares to cover the taxes. But for high earners, it may not be enough

Putting It All Together

I hope you’ve gathered by now that this spreadsheet on its own is not a magic wand that solves all your financial planning problems. It is a piece of the overall picture. There’s a lot that this doesn’t include.

For instance, while we can see that Bill participated in the ESPP program in the past, it doesn’t tell us if he’s participating currently and/or if he will in the future.

It also doesn’t tell us about his overall income and taxes, which help us figure out how much he’ll actually pay in taxes on some of these different areas.

It doesn’t tell us about what other assets and liabilities he has.

And most importantly, it doesn’t tell us about what’s important to Bill - his goals, his values, his comfort with risk, his timelines, and a whole lot more.

Without all of this information, I can’t tell Bill how much he should (or shouldn’t sell), when to exercise and how much, how much to set aside for taxes, etc.

All of this has to work together.

Some Important Notes

This is not a specific client example, but it is based on situations I’ve worked through with clients
Depending on when you download this report, if you are in a blackout period, some of this will look different. For example, instead of seeing a “Sellable” tab, you will see a “blocked” tab
I took out a bunch of rows and columns and consolidated certain data to make it easier to digest and display. Some of this date is really important!
This is a static report, taken at a moment in time. As you exercise stock or sell it or RSUs vest, your overall picture will change, and this spreadsheet can get outdated in a hurry. I typically look to get an updated version of this spreadsheet from clients every year, if not more.
Depending on when you joined and your, some of this may or may not apply to you. For instance, if you joined in the past couple years, you won’t have stock options to exercise.
This is a good overview of what it looks like at E-Trade, but if your company has a different custodian, there is probably something similar.