WEALTH MANAGEMENT FOR SPACEX EMPLOYEES

    The EP Wealth Advisors team has planning experience in complex equity and cash compensation, including working with SpaceX employees.

    We can work with you to develop a tax plan to manage your RSUs, ESPP, ISOs, NQSOs and 401(k) supporting your long term goals.

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    Connect with our team to:

    • Book time with an Advisor that works with your schedule – meet virtually, by phone or in person.
    • Ask questions, discuss your current financial situation and goals, determine actionable next steps.

     

    SpaceX compensation structure is both generous and complex, which creates unique financial planning opportunities

    Purchase Offers – SpaceX typically provides one to two windows that allow shareholders to sell company stock. Taking advantage of these offers is crucial for providing liquidity and managing your investment strategy effectively. We can assist clients in navigating these offers aiming to optimize their sale opportunities and integrate them into their broader financial plans.

    These offers are not consistently timed each year and usually last for 21 business days from the notice. During these windows, there's an initial allocation guaranteeing a minimum number of shares a shareholder can sell, with the option to request more.

    Restricted Stock Units (RSUs) – SpaceX employees may have varying vesting schedules for their RSUs. These RSUs are also known as Stock Award Units (SAUs) under SpaceX's Equity Incentive Plan. We can help clients understand their cash flow and tax implications as a result of vesting RSUs.

    Vesting Schedules: Based on our SpaceX clients, we have seen two different vesting schedules:

    • 3-Year Vest: A one-year waiting period from the grant date, followed by annual vesting over the next two years.
    • 5-Year Vest: A one-year waiting period from the grant date, followed by semi-annual vesting over the next four years.

    Tax Implications:

    • Ordinary Income Tax at Vest: RSUs are considered as W-2 income and are usually taxed as part of a regular payroll cycle. The taxable income is based on the fair market value at the time they vest. This means the amount included in your income for tax purposes is determined by the market price of the shares when they become fully available to you.
    • Capital Gains Tax: Any subsequent gain or loss after the shares have vested is taxed as either short-term or long-term capital gains, depending on the holding period. Shares held for more than one year after vest are subject to the lower long-term capital gains tax rates.

    Tax Payment Options: Upon the vesting of your RSUs, you generally have two options for handling the tax liability:

    1. Share Withholding: You may elect to have the company withhold a portion of your shares to cover the tax obligations. This is a straightforward method, as it doesn't require you to provide cash upfront.

    2. Cash Payment: Alternatively, you can pay the tax liability with cash. This option might be preferable if you wish to retain the full number of shares and are prepared to cover the taxes from other resources.

    Incentive Stock Option (ISO) – ISOs give employees the right to purchase company stock at a predetermined price, offering potential for significant gain – they also have varying vesting schedules. At EPWA, we can help determine how many ISOs to exercise and sell depending on several factors, such as your overall tax situation, expiration date, exercise price, and purchase offer windows.

    Vesting Schedules: Based on our SpaceX clients, we have also seen two different vesting schedules:

    • 4-Year Vest: A two-year waiting period from the grant date, followed by monthly vesting over the next four years.
    • 6-Year Vest: A one-year waiting period from the grant date, followed by monthly vesting over the next five years.

    Tax Implications:

    • No Ordinary Income Tax at Exercise: ISOs are generally not taxed as ordinary income at the time of exercise although if the shares are held beyond the calendar year of exercise, they may be subject to the Alternative Minimum Tax.
    • Capital Gains Tax:
      • Qualifying Dispositions: If shares are held for at least one year after the exercise date and two years after the grant date, any gain beyond the exercise price is treated as long-term capital gains, which are subject to lower tax rates than ordinary income.
      • Disqualifying Dispositions: If shares are sold before these periods, any gains are treated as ordinary income.

    Non-Qualified Stock Option – NQSOs give employees the right to purchase company stock at a predetermined price - NQSOs are subject to different tax rules. Typically, a 6-year vesting period. At EPWA, we can help with deciding when to exercise NQSOs in conjunction with your overall strategy for your SpaceX equity compensation plan, and your overall income tax situation.

    Vesting Schedules: Based on our experience with SpaceX clients, we have seen one vesting schedule:

    • 6-Year Vest: A two-year waiting period from the grant date, followed by monthly vesting over the next four years.

    Tax Implications:

    • Ordinary Income Tax at Exercise: The exercise of NQSOs results in immediate W-2 income included in your regular payroll cycle. The income is calculated as the difference between the stock’s fair market value and the grant price.

    Employee Stock Purchase Plan (ESPP) – allows employees to purchase company stock at a 15% discount on the market price. For our clients, participating in an ESPP can be a strategic way to build wealth by acquiring company shares at a reduced cost, potentially boosting long-term investment returns.

    Tax Implications:

    • Tax Treatment at Purchase: No tax is incurred at the time of purchase. However, the discount received on the shares is subject to taxation as ordinary income when the shares are sold. Any additional gain beyond the discount may be taxed either as ordinary income or as long-term capital gains, depending on the holding period.
    • Qualifying Dispositions: If shares are held for at least one year after the purchase date and two years after the beginning of the offering period, any gain beyond the discount is taxed as long-term capital gains, which are subject to lower tax rates than ordinary income.
    • Disqualifying Dispositions: If shares are sold before these periods, any gains are treated as ordinary income, which could result in higher tax liabilities.

    Annual Merit Letter – typically awarded during annual reviews, these award letters can include long-term incentives such as stock awards, stock options, or cash payments. We can help clients evaluate these options and integrate them into their financial plans to optimize long-term value and align with their financial goals.

    Our clients are typically people who face complexity in their financial lives, who appreciate having investments, taxes, estate planning, trust, and financial planning all in one place — and delivered by a dedicated team. Every client has a dedicated Wealth Team led by their Advisor:

    Advisor
    • Your primary contact for all financial planning and investing needs
    • Understands your financial situation and goals
    • Ensures that all pieces of your plan work together
    • Works with you on plan updates as your needs change
    Financial Planner*
    • A dedicated Certified Financial Planner who collaborates with your advisor, building a plan aimed to meet your life goals
    • Runs multiple cash flow projections to help guide your planning process
    • Creates action plans with specific, personalized recommendations
    Portfolio Manager
    • Transaction expert for specific plan needs such as tax loss harvesting, cash liquidity, or individual stock positions
    • Identifies potential risks to make necessary changes
    • Monitors market conditions to keep your portfolio aligned with your long-term goals
    Client Service
    • Your dedicated service representative for day-to-day support
    • Assists with requests, technology, documents, scheduling, and more
    • Knows your communication preferences and support needs
    Estate/Advanced Planning Team*
    • A team of wealth experts for your long-term goals and legacy
    • Assess and review existing estate planning documents
    • Assist with complex estate planning topics
    • Plan and facilitate strategies for wealth transfer across generations
    Tax Specialists*
    • A dedicated team of EAs and CPAs assisting with tax planning
    • Specialists responsible for tax preparation and compliance*
    • Assist with complex tax topics and research

    *For clients with $1MM+ in managed assets

    Other Dedicated Specialists in the Areas of:
    • College Planning
    • Executive Compensation
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    CASE STUDY

    Managing Alternative Minimum Tax (AMT) with Incentive Stock Options (ISOs)

    Background:
    Mike, a Director of Engineering at SpaceX, had been granted a substantial number of Incentive Stock Options (ISOs) as part of his compensation package. These options became highly valuable due to the company’s successful expansion and innovation in aerospace technology.

    Situation:
    In an effort to capitalize on the increased stock value, Mike decided to exercise a significant portion of his ISOs in a single year. This decision was made without a comprehensive understanding of the potential tax implications, particularly concerning the Alternative Minimum Tax (AMT).

    Issue:
    When Mike exercised his ISOs, the substantial increase in paper income—represented by the difference between the exercise price and the fair market value of the shares at exercise—triggered a large AMT liability. This was because ISO exercises are a preference item for AMT purposes. Unfortunately, Mike was not prepared for this impact, and the high AMT bill substantially reduced his financial gains from the exercise of his stock options.

    Outcome:
    Mike faced an unexpected financial strain due to the AMT bill, affecting his overall investment strategy and financial stability. This scenario led to a significant cash outflow that could have been mitigated with better tax planning.

    How EPWA Could Have Helped:
    At EP Wealth Advisors, we specialize in tax planning strategies for clients with complex compensation packages, including ISOs. If Mike had been our client, we could have assisted him in several ways:

    • Strategic Planning: We would have developed a multi-year plan for the exercise of ISOs, spreading out the exercises to keep the income under the AMT threshold and managing the tax impact over several years.
    • AMT Forecasting: By projecting Mike’s AMT for future years, we could have considered optimal times for exercising options to potentially minimize or eliminate AMT liabilities.
    • Cash Flow Management: Understanding the liquidity needs and tax implications, we could have advised Mike on setting aside sufficient funds or exploring other financial strategies to cover potential tax liabilities.
    • Regular Monitoring: Continuous monitoring of tax law changes and stock market performance to adjust the strategy as needed to optimize potential tax outcomes.

    Conclusion:
    Guidance and strategic planning are crucial when dealing with complex financial instruments like ISOs. At EPWA, we advise clients like Mike and help manage their equity compensation while potentially minimizing tax liabilities, including those associated with AMT.

    The information presented is hypothetical in nature and not reflective of a real client or scenario. There is no guarantee, nor is the intention of this example to establish any sense of assurance, that following the strategies referenced here will produce a positive or desired outcome. There is no guarantee or warranty that any of the steps detailed will enable a positive outcome, successful, or desired results. The intent of this hypothetical example is strictly for educational and illustrative purposes only. 

    DISCLOSURES

    • Please note that the services offered on this page are not exclusive to SpaceX employees. These services are part of the same comprehensive suite that we provide to all our clients, regardless of their employer.
    • EP Wealth Advisors (“EPWA”) makes no representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information presented. All expressions of option are subject to change without notice.
    • Hiring a qualified advisor and/or financial planner does not guarantee investment success and does not ensure that client or prospective client will experience a higher level of performance or results. No guaranty or warranty is made that any direct t or implied results of projections being represented here will be met or sustained.
    • Information presented is general in nature and should be viewed as a comprehensive analysis of the topics discussed. It is intended to serve as a tool containing general information that should assist you in the development of subsequent discussions. Content does not involve the reding of personalized investment advice or is intended to supplement professions individualized advice.
    • The content of this report is believed to be accurate as of the date of publication and cannot and does not accurately forecast future economic, market, or financial conditions; including changes to retirement benefits, social security, and/or Medicare. For this reason, any subsequent changes, and/or that occur after the publication of this presentation may cause the analysis encompassed herein to become inaccurate. Any references to future market or economic forecasts are based on hypothetical assumptions that may never come to pass.
    • Please consult with a CPA, tax professional, and/or attorney regarding your specific situation before implementing any of the strategies referenced directly or indirectly herein.
    • The free financial health assessment referenced here is limited to, and can only be provided to, individuals with $500,000 or more in investable assets. The health assessment is limited to an initial call or meeting with an Investment Adviser Representative (IAR) of EP Wealth to discuss and assess your current financial situation and a subsequent follow-up meeting or call to share our thoughts. No additional services will be provided. EP Wealth Advisors’ obligation is limited to extending an offer to provide these services. It is the responsibility of the individual requesting the free health assessment to accept the service offered. No guarantee or warranty can be made that any of the information discussed or relayed in these meetings will be suitable or relevant. The free financial health assessment is limited in nature and is not intended to be regarded as an attempt to provide comprehensive financial advice.
    • The need for a financial advisor or financial planner and/or the type of services required are specific to the uniqueness of each individual’s circumstances. There is no guarantee or warrantee that the services offered by EP Wealth Advisors will satisfy your financial service requirements. Services offered by other advisors may align more to your specific needs.
    • All investment strategies have the potential for profit or loss. Different types of investments and investment strategies involve varying degrees of risk, and there can be no assurance that any specific investment strategy will be suitable or profitable for a client’s portfolio. The risk of loss can never be eliminated even if working with a professional.
    • EP Wealth Advisors, LLC. Is registered as an investment advisor with the SEC and only transacts business in state in where is properly registered or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the commission, nor does it indicate that the advisor has attained a particular level of sill or ability.

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