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Posted by Douglas Johnson on March 3, 2008, 3:37 pm
omehegan@gmail.com wrote:
>The company I work for was recently bought. It was a cash sale, and I
>had vested stock options which I had not exercised. As a result, I
>will be given cash for my existing options, which is a nice windfall,
>but it'll amount to a short term capital gain for this year's taxes.
>
>My understanding is that I'll be given the full payout for my options
>now, and then I'll have to pay taxes on them when I file next year. In
>the meantime, I'd like to do what I can to minimize the unexpected tax
>hit I'll be taking. I have a 401k and a Roth IRA. My thought was that
>I would contribute the maximum to the IRA for this year, and keep the
>rest of the money as cash. At the same time, I'll increase my 401k
>contributions substantially, to lower my overall taxable income for
>2007, and use the stock money to make up the difference. I figured
>that this made more sense than putting the money in a CD or something,
>where I would be taxed on the earnings. Is this logic sound? Is there
>anything else I should consider in this scenario?
Let me be the first to say "Don't let the tax tail wag the investment dog."
Your approach could make sense IF you have an adequate emergency fund, no
expensive debt, your 401K is low cost, and you really want to tie up the money
until retirement.
Also, look to see if you need to make an estimate tax payment on the proceeds.
-- Doug
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