The Power of a 10b5-1 Plan
Wealth Management / Tax and Estate Planning

The Power of a 10b5-1 Plan

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Of the many ways we see accumulation of wealth, one of the most common over the last decade has been through equity compensation at a public company. While betting on holding so much of one’s wealth in a single stock may have worked out very well historically, the question always lurking around the corner is when is the best time to sell and diversify? How you handle this question can make a big difference in your path to lasting wealth.


Of the many ways we see accumulation of wealth, one of the most common over the last decade has been through equity compensation at a public company. Over the years, many executives and long-term employees begin to see a vast chunk of their wealth and net worth highly concentrated in a single stock. This is especially true for those in the technology industry, which are typically well known for their healthy stock compensation plans coupled with significant share value increase over the last decade. While betting on holding so much of one’s wealth in a single stock may have worked out very well over this time period, the question always lurking around the corner is when is the best time to sell and diversify? How you handle this question can make a big difference in your path to lasting wealth. 

Selling vested shares in your company can be hard for a number of reasons:

  1. Ego and fear of making a mistake. How do I know what is the right price to sell?
  2. Internal pressure and negative view from management and colleagues that you are not a team player.
  3. Not understanding the significant tax implications of selling stock.
  4. Insider trading and confusion around the rules of when a company insider is allowed to sell.

Questions and concerns like these can often cause debilitating non-action and cloud reasonable judgment of key steps on the road to financial independence. One must remember that the concentration of risk is greater than just your vested shares. Most executives and long-term employees will continue to be paid in company stock, and your continued gainful employment depends on the health and success of said company! Because of these factors, it is of the upmost importance that one takes the day-to-day emotion out of diversifying away from this concentration. The great news is there is a powerful tool in your arsenal for this, called a 10b5-1 plan. 

What is a 10b5-1 plan?

At its most basic level, a 10b5-1 plan is a rule established by the SEC that allowed “insiders” of publicly traded companies to create a predetermined, written plan for sale of their stock. The reason a 10b5-1 plan is so powerful is it allows one to specify the number of shares they would like to sell, over what period of time, and at what price. Much like the process of putting money away and investing in a 401k or investment account, the plan allows for a sound and disciplined approach to diversifying the vested shares you have accumulated and takes the fear and irrationality out of when to do so. The plan even spreads out sales over the “blackout dates”, which is those times where executives and insiders are typically not allowed to do any trading of company stock due to corporate events, such as earnings announcements.

How do I establish a 10b5-1 plan?

A written 10b5-1 plan is executed during the period that is often referred as the “open trading window”, the window which quarterly earnings have been released and company insiders are allowed to trade stock. The brokerage company where your vested shares are held will have paperwork to complete which will need to be signed by the you, the brokerage firm, and a legal/compliance representative at your company. 

We understand firsthand how cumbersome this process can be. Your team at Becker Capital will work alongside you to establish the written details of the plan that is right for you and help manage the process from start finish.