Find Financial Advisors for Tesla Employees & Executives: Q&A Insights from the Experts

Tesla Stock Sales Need a Plan Built Around Trading Windows

Tesla employees generally have to sell shares during open trading windows or through a 10b5-1 selling plan, so diversifying takes structure rather than a one-time decision. The advisors below describe tax-aware selling plans, and note that Tesla employees’ mixed feelings about the stock can make the diversification conversation easier than at many companies.

Tesla Stock Options Require Careful Alternative Minimum Tax Planning

Exercising incentive stock options and holding the shares can trigger the alternative minimum tax. The advisors below describe modeling multi-year exercise strategies, using vested RSU shares to fund exercises, and revisiting the hold decision before year-end, when a disqualifying disposition can still undo an exercise that no longer makes sense.

Before Leaving Tesla, Check Unvested Equity, Option Deadlines, and Health Coverage

Unvested equity is forfeited when you leave, and vested options typically must be exercised within a short window after departure. Health coverage ends at month-end, so a gap before a new job starts matters, and 401(k) and HSA contribution limits carry across employers in the same calendar year.

Emily Rassam, CFP®, CRPS, AIFA, NSSA, CDAA

Archer Investment Management  ·  Charlotte, NC  ·  Serves clients nationwide

Richard J. Archer, CDAA, CFA, CFP®, MBA

Archer Investment Management  ·  Austin, TX  ·  Serves clients nationwide

Emily: Your matched 401(k) dollars vest at 25% each year over four years. If you have not yet met four years of service, you may want to review the employer dollars you are leaving on the table. You may have received employee stock options or restricted stock units (RSUs) that are unvested. Look carefully at the dates on your grants and vesting schedules to determine when each RSU grant vests; this may impact your timing to leave TESLA. You have 90 days after departing the company to exercise your stock options. Work with an advisor to determine which grants to exercise and the best way to fund this purchase.

Richard: One common obstacle we find is knowing when to diversify away from the concentration risk of holding a high percentage of your net worth in one company’s shares. Many of our TESLA employee clients struggle with selling positions; it requires coaching, recognizing natural human biases, an evaluation of the risks, and careful diversification away from an outsized position.

Richard: If you were granted ISOs or RSUs, be sure to work with an advisor who understands how to incorporate those into your overall picture. Seek an advisor who can model the alternative minimum tax (AMT), understands the rules around qualifying and disqualifying dispositions, and knows how and when to diversify away from sizeable single stock positions, if appropriate.

Richard: We enjoy finding opportunities to help TESLA employees maximize their ESPP plans, H.S.A. plans, and understand their non-traditional benefits such as tuition reimbursement, legal services, vision insurance refunds, fitness benefits, and generous life insurance benefits.

Emily: Highly compensated employees at TESLA are more likely to have been awarded stock options and/or RSUs. It’s important to evaluate your equity compensation as part of your overall offer for employment and understand how they fit into your multi-year financial plan.

Emily: In recent meetings with a TESLA employee, we modeled multiple stock option exercise strategies to reduce lifetime AMT. In some cases, it makes sense to exercise options slowly over many years. In this case, it made the most sense to exercise all vested options within three years. We determined which vested RSU shares we could sell to help fund the cost of exercising those shares.

Tesla has some great benefits and we make sure that you are taking advantage of all that they offer. This includes helping you with your equity compensation (ISOs, NSOs, RSUs, ESPP), retirement accounts, health insurance and family benefits within their overall corporate benefits package.

Incentive Stock Options (ISOs) are still occasionally issued by Tesla and if you have them, they can be confusing since they do have tax benefits but you have to be careful around generating Alternative Minimum Tax (AMT) if you exercise-and-hold shares via an ISO exercise. We help clients navigate this issue with a structured plan of potentially exercising them early in a calendar year and then revisiting the buy-and-hold decision during the last trading window of the calendar year before AMT might become due on the phantom benefit value from exercising the following April. If the decision to buy-and-hold TSLA shares from an ISO exercise no longer makes economic sense during the last trading window of the year, we help clients explore what’s called a “disqualifying disposition” which works like a “mulligan” in golf…it’s a do over.

Tesla has a nice legal benefit that can allow you to create an estate plan for little to no cost. Many employees might not know about this benefit but it’s one we encourage our clients to use since we focus on much more than just investments. We help review our clients’ corporate benefits, estate plans, tax returns, insurance (property & casualty term life, etc.), college savings plans, debt management and review job offers as they explore moving to a new employer.

If you’re thinking of leaving Tesla, you should consider the financial impact of losing your UNVESTED equity which will be forfeited when you leave. In addition, you may have a short window to exercise and remaining vested options when you leave and need to factor this economic decision into all of the other financial choices that come with leaving Tesla to join a new company. Another consideration is health insurance. Health insurance will end at month-end of your employment. Knowing you have another job starting in a few weeks vs. a few days may leave you open to a medical emergency if coverage is not continuous. Finally, 401(k) employee contributions and HSA contributions are a zero sum game across employers. If you contribute the maximum to the Tesla 401(k) and then move to a new employer, you might need to wait until the next year to start contributing to the new 401(k) to make sure you don’t overcontribute to a 401(k) plan for the calendar year and then need to fix it later to avoid a tax penalty.

A good, high-paying job in tech can feel a bit like golden handcuffs sometimes and it can be hard to imagine walking away. But, if you want to prepare for an exit or a shift to a different industry, we can create a pathway to ease the transition. In a role with equity compensation, a challenge can be to define how much to rely on that compensation in the plan. It’s variable and can be hard to quantify, but can be significant. So, having a firm structure based on a client’s comfort with the exposure and how it’s treated in the plan is important.

How does the advisor think about and approach decisions to complicated financial choices? We’ve found that sometimes the best choice for a particular client isn’t the one with the highest possible economic value because “sleep at night” and emotional factors might be more important than the biggest number on a spreadsheet. Your advisor should be able to clearly articulate how they arrived at their recommendations in a way that you can understand in plain English with no salesy finance gibberish. They should understand that trust must be earned over time and isn’t going to be granted immediately. Beyond these philosophical points, you should ask if the advisor is a fiduciary legally required to put your economic interests before his or her own? Will the advisor be providing comprehensive financial planning or just investment management? What will you pay in fees? Are there any hidden fees in the products the advisor is recommending?

Maybe not surprising in the current political climate, but Tesla employees can feel conflicted in their feelings about their company stock. Most employees of other companies where we have clients LOVE their company stock…it’s their favorite investment. With Tesla, some love it and some not so much. I suppose it makes it easier to discuss diversifying Tesla than it is at other clients’ companies.

For highly compensated employees at Tesla, we encourage them to look at and explore the potential benefits of a deferred compensation plan if they get invited to participate in the following calendar year. It’s a good tool to defer income taxes but comes with some tradeoffs that we help our clients explore before participating.

We have found that many Tesla company employees that are single when they join are more interested in getting married if their significant other doesn’t also have a high amount of compensation. In these situations where our Tesla client makes a high income and their significant other does not, filing their tax returns as “married filing jointly” instead of as a single taxpayer might be just enough of an economic benefit nudge to get clients to say “I do.”