Your separation date is set. Four decisions come with it.
Unvested equity, vested shares, options, and the 401(k) all land at once, and they are not on the same clock. Two of them close permanently on a date written into your plan document. This guide explains which two, and what the order you handle them in does to your tax year.
What the guide covers
- Unvested equity, forfeited at separation
- Vested shares and the tax year
- The post-termination exercise window
- The 401(k), which has no deadline
Bradly Stevens, MBA, LUTCF®, CLU®, ChFC®, WMCP®, CEPA®, CLTC®, AIF®. Roughly 20 years advising high earners on equity compensation and retirement account decisions. Forbes Best-In-State Top Financial Security Professional, 2023–2026.
The unvested piece is already decided
Unvested RSUs and unvested options are forfeited at your separation date.
That is not a decision, it is the plan document, and it takes the largest-looking number on your statement off your list. (Some agreements carry acceleration language tied to a change in control or a reduction in force. Worth reading, but it is the exception rather than the default.)
What is worth pulling out is the vest date closest to your separation date. If a tranche vests days before you leave, that income lands in this tax year on top of severance, and it changes the arithmetic in the next section.
Keep in mind the last day worked and the separation date are not always the same date in the paperwork. The plan document decides which one your equity runs off, and that is the date everything else on this page hangs on.
What to do with the shares you already own
Shares that already vested are yours, and leaving does not force a sale. The tax was paid at vest at ordinary income rates, and your cost basis is the value on the vest date. From there it behaves like any other holding, capital gain or capital loss.
So this is a concentration question, not a loyalty question. But it is also a timing question, because severance, the final paycheck, any accrued time paid out, and anything that vested this year all stack in the same tax year, and a sale with a large gain stacks on top of that.
If the position is a small share of what you own, selling in the same year may cost very little. If it is a large share sitting on a long-term gain, splitting the sale across two tax years is worth pricing out, but only against the risk of holding the position across the gap. Which way it goes depends on whether you can hold into January without the price move mattering more to you than the bracket does.
If you hold options, this is the one with a hard clock
A post-termination exercise window opens at separation and closes on a date set by your plan document, not by a general rule.
When it closes, unexercised options are gone. There is no reinstatement and no late filing.
Exercising costs cash in the year income just dropped. You pay the strike price, and on a nonqualified option you also owe ordinary income tax on the spread between the strike and the value at exercise, generally withheld at exercise.
Incentive stock options carry a second issue. The spread at exercise is an alternative minimum tax adjustment even though nothing was sold, so an exercise can produce a tax bill on gains that exist only on paper. Exercising an ISO more than three months after separation also means it is treated as a nonqualified option for tax purposes, so the ISO clock and the plan's window are two different dates that rarely line up.
The first thing to find is the actual expiry date. It sits in the grant agreement or the plan document, not in the offboarding packet.
The 401(k), and why it usually gets done first
Leave it, roll it to an IRA, or cash it out. This is the only one of the four with no deadline, but it is the one most people handle in the first week, because it is the one they have heard of.
Cashing out is the expensive door. A distribution paid to you carries mandatory 20% federal withholding, you then have 60 days to replace the full original amount to complete a rollover, and under age 59 1/2 there is an additional 10% tax unless an exception applies.
Leaving it in place has a real argument behind it. Separate in or after the year you turn 55 and distributions from that employer plan skip the extra 10% tax, and that provision does not follow the money into an IRA. But if the plan's menu is narrow, or there are already balances sitting at two or three former employers, consolidating gives you one point of contact and does not change what you own.
One piece of this does have a clock. Plans can move a small balance out on their own timetable after you separate, and the threshold is set in the plan document, so it is worth checking the balance rather than assuming nothing moves until you say so.
Most people take these in the wrong order
First, find the date the option window closes and write it down. It is the only item on this list that disappears if it is missed, and it is set by your plan document rather than by a general rule.
Second, add up what is already landing in this tax year before selling anything. Severance, the final paycheck, any time paid out, and anything that already vested set the bracket a share sale would stack on top of.
Third, the 401(k) last. It has no deadline the way the option window does, and taking it first tends to spend the attention the option window needed.
“I already have a CPA”
Most people in this position do, and a good one will file the return correctly. But a CPA is generally working after the year has closed, which means the AMT from an ISO exercise and the bracket effect of a share sale arrive as reported facts rather than as choices.
The decisions on this page get made in the window between the separation date and the option expiry, which is before any of it reaches a return. Happy to work alongside a CPA. That is usually the arrangement, not the exception.
Three steps, and the first one is an email
The guide arrives by email, usually within a few minutes. No call and no scheduling step in between.
Read the section that matches what you hold. Unvested equity, vested shares, the option window, and the 401(k) are each their own section, and the option window comes first for a reason.
If you want your own dates and numbers looked at, the email includes a link to schedule a complimentary review.
It should be in your inbox in a few minutes
The email names the guide in the subject line. It usually arrives within a few minutes. If it has not shown up, it is generally sitting in a promotions or spam folder rather than lost.
The option window section is the one worth opening first. It covers the only date of the four that can pass without anything prompting you, and it explains where in the paperwork that date actually lives.
A short series of emails follows, each one on a different piece of the same four decisions. Every one carries an unsubscribe link, and a booking link is there throughout if a complimentary review would be more useful than reading.
What people ask after the separation date is set
I was given my last day. Do I lose my unvested RSUs?
Generally yes. Unvested RSUs and unvested options are typically forfeited at the separation date under the plan document, which is why it is worth taking off your list early. Some agreements carry acceleration terms tied to a change in control or a reduction in force, so the grant agreement is the place to confirm it. The date that governs is the separation date in the paperwork, which is not always the last day worked.
How long do I have to exercise my options after I leave?
Your plan document sets it, and the windows vary. Once that date passes the unexercised options are gone, with no reinstatement. If the options are incentive stock options there is a second date to track, because exercising an ISO more than three months after separation means it is taxed as a nonqualified option.
Do I have to sell my vested shares when I leave?
No. Vested shares are yours, the tax on them was paid at vest, and your basis is the vest-date value. What changes at separation is the tax picture around them, because severance and any vesting from this year already occupy part of the bracket a sale would land in.
Is it better to roll my 401(k) to an IRA or leave it where it is?
It depends on what the plan gives you and how old you are at separation. Separating in or after the year you turn 55 preserves an exception to the extra 10% tax on distributions from that employer plan, and that exception does not carry into an IRA. Rolling to an IRA can widen the investment menu and consolidate accounts held at several former employers. The guide walks through both sides, including fees, services, withdrawal provisions, and creditor protections.
Does my severance change the tax on any of this?
It changes the bracket the rest of it sits in. Severance, the final paycheck, any time paid out, and anything that vested before the separation date are generally taxed as ordinary income in that year, and an option exercise or a share sale stacks on top. That is the reason the sequence matters more than any single decision does.
Find the date before you decide anything else
The option window is the only one of the four that disappears if it is missed, and it sits in your grant agreement rather than in the offboarding packet. A complimentary review starts there: the dates that actually apply to you, what is already landing in this tax year, and how the four decisions line up against each other.
Book a complimentary review
Bradly Stevens, MBA, LUTCF®, CLU®, ChFC®, WMCP®, CEPA®, CLTC®, AIF®
5405 Morehouse Drive, Suite 245, San Diego, CA 92121
(858) 335-4945