Following headlines of imminent IPOs at prominent technology companies, such as SpaceX and OpenAI, employees and private market investors are looking to maximize their potential windfall. Before you sell any shares, several planning decisions can have a dramatic impact on your tax bill, risk, and estate planning. The opportunity isn’t just to realize the value of your shares; it’s to secure long-term goals and in many cases, create generational wealth.

Here are answers to the questions our clients frequently ask when they own stock in a company that is going public.

What should I be doing right now, before an IPO?

The window before an IPO is when you have the most flexibility. Prior to the actual IPO date, there are often blackout periods where trading is limited for shareholders. When the IPO occurs and shares are public, trading restrictions known as the “lock-up period” kick in, and your options narrow. Now is the time to understand what you hold, what it’s worth, and how you want to approach diversification and taxes when selling restrictions lift. Working with an advisor before an IPO gives you more room to plan. For example, an advisor can help you deploy a long-short strategy early in the year so it has time to work before substantial capital gain income is expected from the IPO.

What do I own?

Many private-company employees or investors often hold a mix of incentive stock options (ISOs), nonqualified stock options (NQSOs), restricted stock units (RSUs), and shares from an employee stock purchase plan (ESPP). Each type carries different tax treatment, timing considerations, and degrees of flexibility. Compiling a complete record of all shares (including grant dates, vesting schedules, strike prices, cost basis, prior exercises, and any existing alternative minimum tax [AMT] exposure) is essential before any decisions are made.

Will I have trading restrictions after the IPO?

Following the IPO, there is typically a lock-up period (often 90 to 180 days post-IPO). However, companies may create special rules post-IPO that allow their employees to obtain liquidity during this time, subject to certain rules. Insiders and executives may face additional restrictions under SEC rules.

Despite these restrictions, certain strategies may still be available to you. Depending on company policy, you may be able to exercise ISOs during a blackout period pre-IPO. ISO exercises after the IPO could mean exercising at a higher fair market value, which increases the ISO spread and the resulting AMT exposure. Other strategies (such as gifting shares to a family member) may be available during a lock-up period, under limited exceptions. Planning your strategy as soon as possible gives you a better starting position.

Keep in mind, blackout and lock-up periods are not the only potential restrictions—particularly if you are an insider with material nonpublic information. A financial advisor can help you navigate these restrictions and develop strategies to trade stock without running afoul of regulations.

I’ve never had wealth at this level to manage or worked with a financial advisor. Where do I even start?

The best place to start is working with an advisor to gain clarity on what you own, when it vests, and what restrictions apply to your situation. From there, the planning questions become clearer and you can design a strategy around taxes, timing, and your longer-term goals.

What taxes will I owe on my shares and when should I sell them?

Equity compensation introduces a layer of tax complexity that is highly sensitive to timing. For ISOs, the main question is when to exercise them and how to manage potential AMT exposure. For NQSOs, the focus shifts to timing exercises to manage the recognition of ordinary income across tax years. For RSUs, planning centers on tax withholding at vesting and the timing of sales, particularly when shares cannot be sold immediately due to restrictions. These decisions are most effective when modeled in advance, ideally across multiple years. When an IPO occurs, execution should be guided by a defined plan rather than real-time reactions.

What state taxes will I owe?

In addition to federal taxes, state tax treatment can materially affect how much you’ll actually take home. In certain states, such as California, tax is based on where equity was earned during vesting, not where an individual lives when they sell. This can create tax exposure in jurisdictions where you no longer live. If you’ve worked in multiple states—or you’re considering a move to a lower-tax state ahead of selling your shares—timing, documentation, and residency planning are critical. There are complex rules, and simply changing your address or buying property doesn’t cut it.

A large portion of my net worth is tied to a single stock. What should I do?

While a concentrated position can be a great way to build wealth, it can also be the greatest threat to your future. The value of a single company can rise faster than the market, but it can fall a lot faster too. The broad US stock market typically sees drawdowns around 15% within a normal year, but the most volatile individual stocks can lose 80% or more from peak to trough. That’s why managing concentration risk is so important. A thoughtful plan to diversify your assets is the ideal strategy to preserve wealth for the long term.

However, there’s an inherent tension to a large single stock position: diversifying makes sense on paper to mitigate risk, but selling can come with a significant tax bill. Ultimately, the appropriate approach depends on several factors—including position size, cost basis, overall tax profile, and desired timeline. Beyond diversification, additional risk‐mitigation tools are also available to protect against declines in stock you don’t sell or to generate income.

If you have unvested RSUs that vest post-IPO, keep in mind that they may come at materially higher values—which will drive larger ordinary income and a corresponding tax bill.

What are my options for selling shares to reduce concentration while maintaining tax efficiency?

For shareholders with a large, concentrated gain, tax-aware separately managed accounts (SMAs) can help reduce tax exposure and concentration risk. A direct-indexing SMA holds individual securities across a chosen benchmark, creating broad opportunities to harvest losses and offset gains from appreciated company shares. A long-short SMA extends this strategy by also incorporating long and short positions, creating more opportunities to harvest losses. These strategies are also highly customizable to each shareholder’s existing holdings and diversification timeline—and can be combined with strategies that accelerate tax liabilities like the timing of ISO exercises. Unlike traditional tax-loss harvesting strategies, long‐short portfolios may provide greater flexibility in managing gains and losses over time.

Are there ways to reduce taxes through estate planning, gifts, or charitable deductions?

Strategies that might otherwise unfold over decades, such as gifting to family members, establishing trusts, or supporting philanthropic initiatives, can often be implemented more efficiently during an IPO through funding with appreciated equity. For many of these structures, it takes time to design and establish the legal frameworks. Advance preparation is valuable, even if implementation happens later.

With all the tax, investment, estate, and other implications, how do I coordinate decisions across a CPA, investment advisor, and attorney?

Preparing for a liquidity event, like a company IPO, is where an integrated approach matters most. Cerity Partners brings together investment management, tax planning, and estate planning through an integrated team of in-house specialists—not a network of outside referrals. Your advisor becomes a single point of contact to manage and execute strategies across your comprehensive financial picture. This can include:

  • building a complete inventory of your equity and cost basis;
  • modeling your tax exposure and multiyear tax scenarios;
  • coordinating with attorneys and investment custodians to design and establish trusts, donor-advised funds, and family entities; and
  • developing a customized investment plan that incorporates tax-efficient strategies to diversify concentrated equity positions.

The most effective strategies are put in place well before you begin selling shares. This is especially critical for employees at pre-IPO firms. If you expect to go public soon, the time to design your strategy is now, when you still have the most options available. Early preparation creates flexibility, reduces uncertainty, and allows decisions to be made deliberately—rather than reactively—with tax efficacy in mind.

Do I need a full wealth management relationship to get support for navigating an IPO?

Cerity Partners’ Capital Solutions is specifically designed for situations like this. It’s a standalone service for people facing a complex, time-sensitive financial event who may not need or want a comprehensive ongoing advisory relationship. You get access to specialists who can help with your specific situation.

To discuss how these considerations apply to your situation, reach out to your Cerity Partners advisor or request an introduction today.

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