Instead of recommending that clients hold on to take advantage of future gains and tax benefits, some investment planners are telling them to cash in as soon as they are vested. That's not true for everyone, however. Mass. Besides allowing for tax planning, a regular schedule for exercising options means you can plan ahead for big purchases and won't be forced to sell a huge chunk when the stock is in a temporary trough. If your company grants options every year, you can always pile up more next year to replace any you have exercised. True, someone with millions in the bank and even more millions in options may be able to afford to wait before cashing out.
Some companies also offer planning services to high-level employees.
People in general tend to be too optimistic about their companies,'' says Lewis Altfest, another New York planner. Although your outfit beats its competitors hands down, its stock still could tumble in a broad market decline. While reducing risk may push you to cash in, other forces are pulling at you to hold on. Owners of incentive stock options can often save thousands on taxes by holding company stock at least a year after exercising. Selling a large chunk could trigger the alternative minimum tax, which you may avoid by staggering stock sales over several years.