SpaceX Is Now Public: What Employees Need to Know

Understand how equity fits in your overall financial situation.

“Besides solely focusing on this IPO, I think it’s important to understand this is just one part of your whole financial picture,” says Peter McGinley, a CFP® (certified financial planner) at NerdWallet Wealth Partners.

Employees may create an inventory of how much equity they have, what type of equity it is, when it vests, how much it costs to acquire and when options expire. Using online financial planning tools and estimators, or talking with an advisor who offers holistic advice rather than just investment management, can help you think through how the potential value of your equity affects other life goals, such as buying a house, retiring earlier or paying off debt. “Is this IPO going to change your trajectory majorly? Is it going to completely provide a lifestyle shift? Are you going to be able to move because of this? It’s important to take a step back and zoom out,” says McGinley.

Evaluate the benefits of an estate plan.

Think about who might inherit your equity positions (and who might come after your estate with a claim), as well as who you trust to manage the shares if you become incapacitated. “You probably should at least have a will, and if your situation calls for it, a trust,” McGinley says. Trust assets typically transfer directly to designated beneficiaries when you die, bypassing probate, which is a court process that may otherwise distribute your property. Review the beneficiaries on the accounts that hold your employee equity (beneficiary designations on some financial accounts may supersede what is designated in your will), and name a guardian for your children in your will. Also, remember that a handwritten will (called a holographic will) may not be valid in your state; you may need to consult with a qualified professional, such as an estate attorney. A credentialed financial advisor with estate planning experience may also help coordinate and evaluate estate planning considerations as part of a broader financial plan.

Understand the tax implications of equity compensation.

What (and when) you pay as taxes on stock options, restricted stock units and other forms of equity compensation depends on a variety of factors, such as when you receive the compensation, when it vests, when you exercise the options, the market value of the shares, how long you hold the shares, how much you sell them for and how much other income you have.

AMT, or alternative minimum tax, in particular could sneak up on you if you’re not prepared. AMT is a tax system that runs parallel to the standard tax system, but with different tax rates that are intended to ensure certain high earners pay at least some income tax. Exercising your SpaceX stock options at a huge discount may trigger AMT, even if you haven’t sold a single share, and the bigger the difference between the strike price and the market value of the shares, the bigger the AMT exposure may be.

The good news is that you often have a lot of control over the timing and size of the tax bill if you know your options and make a plan. For example, an advisor can help evaluate which stock options to exercise and when, as part of an overall financial and tax planning process.

Plan for different stock price scenarios.

SpaceX’s stock price movements during the lock-up period could generate a lot of emotional noise, and employees watching the price spike or drop may be tempted to make reactive decisions the moment they’re allowed to sell. Instead, McGinley says, use this time to plan around three potential events: the share price remains relatively unchanged between today and when the lock-up expires, the share price increases by 20% by the time the lock-up expires, and the share price decreases by 20% by the time the lock-up expires.

Why? Because it’s human nature for people to obsess over the stock price during the lock-up period, McGinley says. “To think you can predict what’s going to happen with the stock price, even if you work at the company, is just unrealistic,” he says. “But knowing that they have a plan for all three scenarios often relieves clients of that anxiety and that worry.”

Stay calm.

Revisit your plan. “We don’t want to act irrationally and emotionally based off short-term emotions,” McGinley says. “During COVID, I was advising my clients not to make any big life decisions, because we don’t know what’s going to happen in the next year…and this is not that dissimilar.”

Keep track of when your trading window is open (and closed).

Even after the lock-up expires, you probably won’t be able to sell shares anytime you feel like it. For example, it’s common for companies to prohibit employees from trading shares during the weeks before quarterly earnings releases (these are sometimes called blackout periods).

Beware of becoming financially reliant on the performance of one company.

Some investors with substantial holdings in a single company often evaluate the benefits and risks of concentration. “If something happens to that company, you’re very exposed,” McGinley says. Some choose to retain their shares, some diversify over time, and others adopt a combination approach depending on their goals, tax considerations, and risk tolerance.