I’m 33, currently earning just over $120,000 a year including annual bonus, and my company has offered me about $300,000 of equity in the business, although our stock is brand new, they therefore constantly oscillate from top to bottom. . I put about 6% towards a 401(k) and another 4% towards personal savings, investments and emergency cash.
As for debt, I have about $35,000 in student loans, $5,000 in credit card debt, and $16,000 in personal loans. I have no car payment. I am partially helping to support my partner for 12 years as his business is unfortunately struggling, but he won’t let go of the business. So part of my income goes to help him cover his bills and expenses.
The big question is, should I sell my company’s equity to pay off my debt? Or should I continue to pay off my debt and allow my stock to grow? I realize that I would have to pay quite a lot of taxes because of the stock gains, so I have to factor that into the sale as well. Thank you very much for your contribution and thank you for your column.
Debt with equity
You have come a long way in a very short time. The median salary in the United States for someone your age (25-34) hovers around $50,000 a year, so you’re punching above your weight professionally and with a 12-year relationship under your belt, you are also ahead of the game personally, and clearly living your best life. You don’t have a car payment which is also a plus. So far, so good.
Before we weigh in on your answer, I’m going to offer the first of two unsolicited tips and emphasize the importance of living within your means. If only we could all take this advice to heart! We are all guilty of splurging – sometimes responsibly – from time to time. Your student loan debt was clearly money well spent, and your personal and credit card debt make up a smaller proportion of your overall debt.
That said, it’s important to clear your credit card debt every month and, if possible, avoid paying interest rates on a personal loan. There is no point in paying off your debts if you accumulate a similar amount in the future. This should be the biggest lesson to be learned rather than using your monthly income versus your stock options to go back into the black.
“Your student loan debt was clearly money well spent, and your personal and credit card debt make up a smaller proportion of your overall debt.”
Before selling shares, it would not be imprudent to consult a tax adviser. For what it’s worth, stock-based compensation awards for services are generally subject to ordinary income tax at the time they acquire or take possession of the stock, says Timothy P. Speiss, tax partner at the firm of equity advisers. personal wealth at Eisner Advisory Group LLC.
“If you acquired the award in 2022, a combined federal and state graduated rate could be approximately 40% (or more) before local tax, employment tax, and additional considerations and other facts. You need confirmation and you should monitor whether you have to pay large enough taxes due to potential gains on the current or future sale of the stock,” he says.
“Your debt level of $56,000 is manageable given your gross income and the value of your assets; however, you should review loan interest rates and consider repaying these amounts, particularly when the interest rate – and interest charges do not appear to be tax deductible – exceeds the return on your investment. assets,” he says. .
“Continue to show yourself the same compassion you show your partner and their business, but bring the same critical eye to every effort. It will help you both in the long run. ”
And now for my second unsolicited tip: Talk to your partner about their plan for the business. You want to balance your support of his dreams with the cold reality of business viability. You may need to hire an independent third-party consultant to help you navigate your partner’s approach to their business. You want to help her make the right decision.
Sometimes it’s hard to let go. But it could mean selling the business, hiring a new business partner, co-investor or even starting a new venture, adds Speiss. “In considering these suggestions, preserving your own income and assets is essential. If the business were to cease, you could still help cover its bills and expenses.
The good news: your debts are manageable and don’t require you to sell your company’s shares, which you may regret later, and you also have other issues to deal with that are just as urgent, namely the business of your partner and your commitment to avoid accumulating even small debts if you don’t have enough money set aside to pay them.
Continue to show yourself the same compassion you show your partner and their business, but bring the same critical eye to every effort. It will help you both in the long run. Sometimes it’s the things you leave on the editing room floor – in which case what questions did you ask do not ask in your letter – it may provide the clearest perspective and ultimately be the most enlightening.
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