Leaving Your Tech Job? 3 Must -Do Steps Before Your Exit

True Root Financial is a financial advisor and financial planner based in San Francisco, CA. We serve clients across the globe.

Transitioning out of your tech job is a big decision. Whether you’re starting a new chapter with a different company, venturing into entrepreneurship, or taking a break, there are several steps you must take to ensure a successful exit. You’ve worked hard for your equity compensation and earned income and now it’s time to make sure you don’t leave any of it on the table.

If you are a tech professional interested in learning how we can help you claim your financial independence by investing wisely, minimizing taxes, and maximizing your equity compensation, please book a no-obligation call here.

From managing equity compensation to minimizing taxes, the goal of every working professional is to build long-term wealth and achieve financial independence. Let’s dive into the vital steps you should take before leaving your tech job.

Watch our detailed video on leaving your tech job and maximizing your financial future below:

Why is Investing and Financial Planning for Tech Professionals Different?

It’s because of the way you’re compensated in both dollars and stocks. While stock compensation can make you a lot of money, it also comes with risks such as its complexity, taxes, concentration in one stock, or irregular income like a windfall from a company exit, and the volatility of the tech sector. That’s why having a partner who truly understands the complexities of equity compensation and the unique challenges of the tech industry is crucial in turning your income and equity into long-term wealth.

Some of the Challenges Faced by Most of the Tech Professionals

Our clients come to us at pivotal moments:

When their company has an IPO or an exit, and suddenly all the equity they had is now liquid and worth a lot of money.
Or, when they’re leaving their company, and they need to make decisions about the equity tied to that company.
Lastly, clients come to us to achieve financial independence so they can create more options in their life – whether to retire early or continue doing the work they love.

Step 1: Optimize Your Exit Strategy for Long-Term Wealth

Your exit strategy is essential to ensure that your financial future remains secure, even after leaving your job. This is your plan for how you’ll handle everything related to leaving your job—from your financial goals to managing your stock or equity holdings. Here’s how you can optimize your strategy:

Step 1.1: Review Your Company Stock

Take stock of your equity compensation before leaving. Do you have stock options? If so, are they Incentive Stock Options (ISOs), Non-Qualified Stock Options (NSOs), or are they RSUs? Understanding the details of these holdings is crucial.

Stock Options: If you have stock options, make sure you know if they’re incentive stock options (ISOs) or non-qualified stock options (NSOs), and check whether they are vested or unvested. The vesting schedule plays a role in whether you should stay until the stocks fully vest.
RSUs and ESPP Stocks: Vested RSUs and ESPP shares are yours to take with you when you leave, but unvested RSUs typically will not transfer.
Exercising Stock Options: If you have vested stock options, be aware of the 90-day window to exercise them after leaving your company.

Step 1.2: Create a Financial Plan

A comprehensive financial plan is your roadmap to long-term wealth. Think of it like planning a road trip—before hitting the road, you need to map out your route, plan your stops, and ensure you have the resources to reach your destination.

In the same way, your financial plan helps you:

Set short-term goals (buying a house, starting a business).
Identify long-term objectives (retirement, financial independence).
Mitigate risks, such as not being overly reliant on a single stock.
Invest in a tax-advantaged way.

Step 1.3: Diversify Your Investments

It’s best to diversify your company stock immediately.
Holding too much in a single company stock exposes you to excessive risk. There’s a wealth of research showing that the market doesn’t compensate you for single-stock risk. Holding on to one company stock can be dangerous in the long term.

For example, think about companies like Intel or Cisco. They were hailed as the next big thing in the early 2000s but are underperforming today. When clients have significant assets tied to one company stock, and we’re talking about millions of dollars, we do a gap analysis to determine how much needs to be diversified

Gap Analysis: This analysis compares your financial goals with your current equity holdings to determine how much you need to diversify to reduce risk.

We look at goals such as buying a house, leaving your job, starting a business, or retiring early. Then, we take the company stock and equity compensation out of the equation to see what shortfall exists. This tells us how much to diversify to ensure your financial plan doesn’t suffer if the stock loses value.

Step 2: Minimize the Risk of Tax Traps Post-Exit

Tax planning is essential when leaving a tech job, especially when stock compensation is involved. If you don’t plan properly, it’s easy to make costly mistakes. Here’s how to minimize tax risks:

Step 2.1: Understand Your Tax Implications

Different types of equity compensation come with different tax treatments. For instance:

Incentive Stock Options (ISOs): These are subject to the Alternative Minimum Tax (AMT) when exercised, which could result in a hefty tax bill if not planned correctly.
Non-Qualified Stock Options (NSOs): These are taxed as ordinary income, which can result in higher taxes.

Step 2.2: Plan for Taxes

Before exercising your options or selling stocks, it’s crucial to estimate the tax implications. We once worked with a client who sold his private company’s ISOs without understanding the tax consequences, ending up with a large cash payout but unsure of how much to set aside for taxes.

By doing a thorough tax estimate beforehand, we helped the client minimize his tax burden by:

Moving contributions to a traditional 401(k) to reduce taxable income.
Contributing appreciated shares to a donor-advised fund to reduce taxes.
Spreading the sale of shares over multiple years to avoid higher tax brackets.

Proper tax planning can save you thousands of dollars and help you avoid costly mistakes, such as paying unnecessary taxes or losing out on potential gains due to improper timing. The same applies to RSUs and ESPP shares. Understand how selling these will affect your taxes and whether you need to spread the sale over multiple years to minimize your tax burden.

Step 2.3: Don’t Forget Tax Deadlines

Pay close attention to important tax deadlines, especially after selling shares or exercising stock options. Delays can result in missed opportunities to minimize taxes. Always consult a tax advisor to make sure you’re on top of deadlines

Step 3: Use Your Equity for Career Flexibility and Leverage

One often-overlooked benefit of equity compensation is the flexibility it can provide in your career. Here’s how to leverage it for your next move:

Step 3.1: Use Your Equity to Fund Your Next Move

Your equity compensation can provide the financial cushion you need to take a sabbatical or start a new venture. By carefully planning how to tap into your equity, you can support your next career move without financial stress.

Step 3.2: Negotiate Better Terms for Your Next Job

If you’re moving to a new company, use your current equity as leverage in salary negotiations. You can ask for better stock options or a signing bonus to offset the equity you’re leaving behind. This can give you more financial flexibility and ensure you’re compensated fairly in your next role.

Conclusion

As you prepare to leave your tech job, it’s essential to optimize your exit strategy, minimize tax risks, and leverage your equity for future opportunities. By following these three vital steps, you can ensure that you transition smoothly and continue to build long-term wealth.

If you need personalized advice on managing your equity compensation, minimizing taxes, or maximizing your financial plan, we’re here to help. Book a free consultation with True Root Financial today and start planning your next career move with confidence.

Leaving Your Tech Job? 3 Must -Do Steps Before Your Exit

Why is Investing and Financial Planning for Tech Professionals Different?

Some of the Challenges Faced by Most of the Tech Professionals