What happens to each type
- Unvested options and RSUs: usually forfeited on your last day.
- Vested options: you have a post-termination exercise period, often 90 days, sometimes years at companies with extended windows.
- Vested double-trigger RSUs: depends on the plan. Some you keep until a liquidity event. Many expire if no event happens within a set term, often 7 years from grant.
Check your grant agreement and equity portal for the exact dates.
ISOs after 3 months
Even if your plan gives you longer, ISOs exercised more than 3 months after you leave are treated as NSOs. The spread becomes ordinary income at exercise instead of possible long-term capital gain.
What exercising costs
To keep your options you need cash for:
- The strike price × shares
- Tax at exercise
- NSOs: ordinary income on the spread, based on the 409A value
- ISOs: possible AMT on the spread
At a private company you can't sell shares to cover either.
How to decide
Ask yourself:
- How confident am I in an exit? You're buying illiquid stock.
- What's the total cash at risk, including tax? Could I lose it without hurting my finances?
- Is the spread small? A low spread means little tax now.
- Partial exercise? You can usually exercise some and let the rest expire.
Ways to fund it
- Exercise financing firms advance the cash in exchange for a share of the upside, usually with no repayment if there's no exit.
- Secondary sales: some companies allow selling part of your vested shares.
- Ask for an extension. Some companies will extend the window, especially for long-tenured employees.
Calculate your deadline
The Leaving a Company calculator shows your deadline, the cash needed, the tax, and what you'd give up.
General information, not tax advice.
Frequently asked questions
What happens to my unvested stock options when I quit?
In most cases, any unvested stock options and RSUs are forfeited on your final day of employment. You should check your specific grant agreement and the equity portal provided by your company to confirm the exact status of your unvested holdings.
Do my ISOs lose their tax status if I wait longer than 90 days to exercise?
Yes, even if your company plan offers an extended window, any incentive stock options exercised more than three months after departure are treated as non-qualified stock options. This change means the spread is taxed as ordinary income at the time of exercise rather than potentially qualifying for long-term capital gains treatment.
What costs must I pay to exercise my options after leaving a startup?
To exercise, you need cash to cover the total strike price for your shares. You must also prepare for tax obligations, which include paying ordinary income tax on the spread for NSOs based on the 409A value or managing potential alternative minimum tax for ISOs.
How can I pay for my stock options if I do not have the cash on hand?
You might consider using exercise financing firms, which advance the necessary funds in exchange for a portion of the future upside. Other options include asking your employer for an extension of your exercise window or checking if your company permits secondary sales to fund your exercise costs.
Official sources (for the detail-minded)
- IRC Section 422(a)(2)ISOs must be exercised within 3 months of leaving to stay ISOs
- IRC Section 422(c)(6)The longer 1-year window after a disability
- Treas. Reg. Section 1.422-1Details of the ISO employment rule
- IRS Publication 525What happens when options become NSOs
Run your own numbers
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