Should You Take Employee Stock Options?

Perhaps you’ve been offered a job package with a combination of salary, benefits, and stock options. But you’re trying to decide if you should take those employee stock options and you’re wondering how do options work anyway? Is it worth taking a lower salary offer in exchange for stock options?

The answer depends on a number of things. You certainly want your base salary to cover your expenses, but stock options could give you a sense of ownership (and, to a degree, actual ownership) in the company you work for.

Employee stock options also have the potential to make you some extra money, depending on the market, which might be a nice perk. Before you decide if you want to take the stock options, you might want to understand how options work.

What Are Employee Stock Options?

Employee stock options give an employee the chance to purchase a set number of shares in the company at a set price—often called the exercise price—over a set amount of time. Typically, the exercise price is a way to lock in a lower price for the stock.

This gives you the chance to exercise your options at a point when the exercise price is lower than the market price. You may be able to then make a profit on the shares, but just because you have the stock options doesn’t mean you necessarily want to exercise your options.

When talking about stock options, there are some terms to know in order to understand how options work.

•   Grant price/exercise price/strike price: This is the given set price that you can purchase the stock options for
•   Market price: This is the current price of the stock on the market (which can be lower or higher than the grant price you would pay, though typically you would only choose to exercise and purchase the options if the market price is higher than the grant price)
•   Issue date: The date you’re given the options
•   Vesting date: The date after which you can exercise your options per the original terms
•   Exercise date: This is the date you actually choose to exercise your options
•   Expiration date: You have until this date to exercise your options or they expire

That might seem a little bit complicated, but employee stock options don’t have to be confusing. They’re a way for companies to offer an incentive for employees to help strengthen the company: better company, higher stock prices.

How Do Options Work?

When you’re given stock options, that means you have the option or right to buy stock in the company at the established grant price. You don’t have to exercise options, but you can if it makes sense.

Exercising your options means choosing to actually purchase the stock at the given grant price, after a given waiting period. If you don’t purchase the stock, then the option will eventually expire.

For example, let’s imagine you were issued employee stock options on Jan. 1 of this year with these terms: the option of buying 100 shares of the company at $10/share; you can exercise this option starting on Jan. 1, 2021 (the vesting date) for 10 years, so until Jan. 1, 2031.

If you choose not to exercise these options by Jan. 1, 2031, then they would expire and you would no longer have the chance to buy stock at $10/share.

Now, let’s say the market price of shares in the company goes up to $20 at some point after they’ve vested on Jan. 1, 2021, and you decide at that point to exercise your options.

This means you decide to buy 100 shares at $10/share for $1,000 total, but the market value of those shares is actually $2,000.

There are multiple ways to exercise your options in this scenario. You could just buy the 100 shares with $1,000 cash and you would then own that amount of stock in the company.

Another way is to do a cashless exercise, which means you sell off enough of the shares at the market price to pay for the total purchase. (In this scenario, for example, you would sell off 50 of the shares at $20/share to cover the $1,000 that exercising the options cost you. You would be left with 50 shares.) Most brokerages will do this buying and selling simultaneously.

The third way to exercise options only works if you already own shares. A stock swap allows you to swap in existing shares of the company at the market price of those shares and trade for shares at the grant price.
For example, you might trade in 50 shares that you already own, worth $1,000 at the market price, and then purchase 100 shares at $10/share.

When the market price is higher than the grant price, known as your options being “in the money,” you may be able to gain value for those shares because they’re worth more than you pay for them.

That doesn’t mean you have to exercise your options or that it necessarily makes sense for you. That depends on your financial situation, the forecasted value of the company, and what you plan to do with the shares after you purchase them.

Typically, employee stock options come with a vesting period, which is basically a waiting period after which you can exercise them. This means you must stay at the company a certain amount of time before you can cash out.

The stock options you’re offered may be fully vested at a certain date or just partially vested over multiple years, meaning some of the options can be exercised at one date and more at a later date.

Why Do Companies Offer Stock Options?

Employee Stock Ownership Plans were established by Congress in 1974, though the idea of profit-sharing has certainly gone back further than that. In many ways, the notion is simple: If employees are financially invested in the success of the company, then they’re more likely to be emotionally invested in its success as well and it can increase employee productivity.

From an employee’s point-of-view, stock options offer a way to share in the financial benefit of their own hard work. In theory, if the company is successful, then the market stock price will rise and your stock options will be worth more.

A stock is simply a fractional share of ownership in a company, which can be bought or sold or traded on a market. The financial prospects of the company influence whether people want to buy or sell shares in that company, but there are a number of factors that can affect the price of a stock.

That means there’s no guarantee the stock price will rise if your company is successful. However, one survey from Deloitte found that 69% of people believed employee stock options both increased the ability to attract, recruit, and retain talent, and also more closely aligned the interests of the employees with those of the shareholders.

While stock options were traditionally offered to higher level executives as an incentive, broad-based employee stock options took off during the 1980s and ’90s. According to the Employee Ownership Foundation , at its peak, about 30% of private sector employees have some form of stock options.

The Different Types of Stock Options

There are two main kinds of employee stock options: qualified and non-qualified. These are also known as incentive stock options (ISOs) and non-qualified stock options (NSOs or NQSOs).

The main differences center around taxes. When you buy shares in a company below the market price, you could be taxed on the difference between what you pay and what the market price is. ISOs are “qualified” for preferential tax treatment, meaning no taxes are due at the time you exercise your options—unless you’re subject to an alternative minimum tax.

Taxes are then due at the time you sell the stock and make a profit. If you sell the stock more than one year after you exercise the option and two years after they were granted, then you should only be subject to capital gains tax.

If you sell the shares prior to meeting that holding period, you will pay additional taxes on the difference between the price you paid and the market price as if your company had just given you that amount outright, so it would likely behoove you to hold on to the shares for at least one year after exercise and two years after your grant date.

NSOs, on the other hand, do not qualify for preferential tax treatment, so exercising stock options subjects them to ordinary income tax on the difference between the exercise price and the market price at the time you purchase the stock. Unlike ISOs, NSOs will always be taxed as ordinary income.

Taxes may be specific to your individual circumstances and vary based on how the company has set up its employee stock option program, so you might want to consult a tax advisor.

Should You Exercise Options?

A good first step might be to determine if and when you can exercise options. Vested options are stock options that have hit their vesting date after a waiting period and you can now choose to exercise them, i.e., purchase the shares at the exercise price.

It can be difficult to know if you should exercise options, because it’s hard to know if the market price of the shares is going to go up or down in the future.

Some people wait until right before the expiration date of the options, but you can choose to exercise your stock options at any point after the vesting date and before the expiration date.

There are a number of things you might want to weigh when deciding if you should exercise options: the tax implications and type of option, the financial prospects of the company, and your own portfolio. You also might want to consider how many shares are being sold in the company.

For example, if you’re offered shares worth 1% of the company, but then the next year more shares are made available, you could find your ownership diluted and the stock would then be worth less.

How many shares are being made available, to whom, and on what timeline are factors you could consider when weighing what stock options are worth as part of a job offer.

To Keep or to Sell?

The other thing you may want to consider once you exercise your stock options is whether to keep or sell the shares you’ve purchased. Some companies also have specifications about when the shares can be sold, because they don’t want you to just exercise your options and then sell off all your stock in the company immediately.

But you also probably want to consider how the stock fits into your overall financial portfolio. If you have a lot of stock in one company, if that stock goes up or down, it could have an impact on your financial well-being.

That might be magnified if the company you work for takes a big hit and has layoffs at the same time—you could find yourself both without a job and with company stock options that aren’t worth as much as they once were.

Diversifying Your Portfolio

Instead of holding onto the stock, another thing you could consider is selling the options at a higher market price than you paid for them and then using the cash to diversify your portfolio.

Diversifying your portfolio across a number of companies and industries could help spread out the profit potential and risk. There could be tax implications, though, if you sell too much stock at once, and you may want to consult a tax accountant.

If you do choose to sell your stock options and are considering investing the money in a diversified portfolio, then SoFi Invest® can help you develop a portfolio strategy that works for your financial goals.

SoFi Invest offers both active and automated investing, letting you build a diversified portfolio based on your risk tolerance and financial goals—with zero transaction or management fees. Get started today!


External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

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How Are Employee Stock Options and RSUs Different?

When you get a job offer, your benefits package may include more than just your salary, healthcare, and vacation time. In addition to all that—and maybe some work-from-home allowances—you may also be offered an employee stock plan.

Two of the most common offers, employee stock options (ESOs) and restricted stock units (RSUs), both give you the chance to eventually become a shareholder in your company.

Sometimes, an employee stock plan is offered to everyone as a companywide benefit. Other times, it’s a custom plan that’s baked into an executive job offer as either a recruitment and retention incentive, a way to cover the lack of cash flow in a startup, or both.

And sometimes, you get a choice between ESOs and RSUs. Having the option to own stock in your employer could provide some big financial benefits—especially if you believe in the company and its future.

But it also comes with some risk. Understanding which stock plan is better for you, how it works, and how it could affect your taxes could make you run to a financial advisor for help—or just run away.

A recent survey discovered that around 36% of employees (about 32 million Americans) who work for stock-issuing companies hold shares or options. But ignoring the benefit just because it seems out of reach could equal leaving money on the table. This guide could help you break down your options and decide whether it’s right for you.

First, a Stock Market Appetizer: Alphabet Soup

Navigating your employee stock plans can include a lot of acronyms, words that mean something entirely different anywhere else, or multiple words that mean the same thing.

And one of the keys to confidence could simply be understanding what the heck the document from HR says. In addition, having a grasp of stock-market vocabulary might help you decipher quickly what your employer is offering, the terms and restrictions, and whether it’s a good deal.

What’s a Stock Option, Anyway?

“How do stock options work?” is an easier question to answer once you have a good idea of what a stock option is. The answer is pretty straightforward—it’s an option to buy shares in the future for a price set today. The “option” part means you can buy the stock later if it suits you, but you aren’t obligated.

Unlike an outright stock purchase, an option doesn’t give you actual shares until you decide to buy them, which is called exercising. Another difference from a traditional stock purchase is that options become null and void if you don’t exercise your stock options before the expiration date.

If the company stock has floundered over the years and not produced a return, you can just walk away and the option ceases to exist. But here’s a spoiler alert: If you let your employee stock options expire when the stock price has gone up, you could be leaving thousands of dollars on the table.

The Grant/Strike/Exercise Price

See? Three different words for the same term: the price at which your plan says you can purchase company stock. It’s most often based on the stock’s current market value and is extremely important because it determines whether your options end up winners or losers.

If your strike price is 1,000 shares at $1 per share, for example, that’s what you’ll pay for those shares if you decide to exercise, regardless of their current market price.

When the stock is currently trading above the strike price, it’s called being “in the money” and the profits can be huge.

Conversely, if the stock’s market price falls below the strike price, your options are considered “underwater” or “out of the money” and don’t hold any value. In that situation, it may be cheaper to buy your company’s stock on the open market.

Privately Held, Publicly Traded, and Going Public

If a company is considered public, it’s registered with the Securities and Exchange Commission (SEC) and is approved to offer shares to the public on an exchange. Exercising your options at a public company means you can then trade your shares on the open market.

Many private companies also offer stock options—especially if they’re a startup looking to grow capital. (Check out this interesting case study .)

But because a private company hasn’t gone through the SEC registration process, shares can only be sold privately unless the business “goes public.”

That’s the common term for an initial public offering (IPO), or a private company’s transition to the public market. If you go through an IPO as a private stock options holder, you’ll be allowed to sell your shares on the stock exchange. The rules on pre-IPO stock can be pretty stringent, though.

ESOs: The Grant, the Cliff, the Vest, and the Exercise

Lesson two: How do stock options work? This is where the process, the timeline, and all the rules and regulations that come with options come into play. It’s also where you might start to get a clearer picture of your own situation.

For the most part, ESOs operate via a four-step process.

First, the grant: The grant date is the official start date of an ESO contract. You receive official information on how many shares you’ll be issued, the strike price for those shares, the vesting schedule, and any requirements that must be met along the way.

But typically, all that happens on the grant date is you get some paperwork and the clock starts ticking.

In order to start claiming your stocks, you may first need to survive the cliff.

The cliff: If a compensation package includes ESOs, it doesn’t necessarily mean that they’re available on day one. Contracts often contain a number of requirements that must be met first, such as working full time for at least a year.

Those 12 months, when you’re working but not yet eligible for stock options, is called the cliff.
If you remain an employee past the cliff date (without jumping), you get to level up to the vest.

Next, the vest: It’s not some exclusive company uniform that’s only available to stockholders (although that might be kind of cool.) When you pass your cliff date, your vesting period begins, which means you start to take ownership of your options and the right to exercise them.

Vesting can either be a slow burn over several years or an all-at-once proposition, depending on your company’s plan. One common vesting schedule is a one-year cliff followed by a four-year vest.

On this timeline, you’re 0% vested the first year (meaning you aren’t eligible for any options), 25% vested at the two-year mark (you can exercise up to 25% of the total options granted), and so on until you own 100% of your options. At that point, you’re considered fully vested. (But still no sweet wardrobe, sadly.)

Finally, the exercise: This is when you pull the financial trigger and actually purchase some or all of your vested shares.

Here are some common exercise options for your options.

•   You can buy the stock outright, but it might require a hefty chunk of change up front. For example, 10,000 shares at $2 each is a cool $20,000. One advantage to this exercise, however, is that you hold all the stock and are free to do with it as you please on the open market.
•   If you don’t have that kind of cash, you can buy and sell all your stock in one breath with something called an exercise-and-sell transaction. In this scenario, your broker essentially lends you the cash to exercise your options, then pays itself back with a portion of the sale profits.
•   Another option is to buy all your shares, sell just enough to cover the cost (according to the example above, $20,000 worth), and hold the rest. This is called an exercise-and-sell-to-cover transaction.

One common timeline is 10 years from grant date to expiration date, but specific terms will be in a contract.

The Pros and Cons of Exercising Employee Stock Options

If you land a job with the right company and stay until you’re fully vested, exercising your employee stock options could lead to instant, huge gains.

Especially if, for example, your strike price is $30 per share and now the stock is trading at $100 or more per share. On the other hand, if your strike price is $30 per share and the company is tanking, your options are basically worthless.

But perhaps the biggest downside that comes with exercising employee stock options is now much Uncle Sam can take.

How Can Employee Stock Options Affect Taxes?

Generally speaking, employers offer two types of stock options: nonqualified stock options (NSOs) and incentive stock options (ISOs). NSOs are the most common and often the type offered to the general workforce.

The difference between the strike price and the stock’s value when you exercise your options is considered earned income and added to your W-2, where it’s taxed just like your salary.

Any money you make above and beyond that if you sell your shares later can also be subject to the capital gains tax, which is imposed on profits earned from selling certain types of assets, such as real estate, stocks, or a business.

The capital gains tax doesn’t kick in if you simply own these assets, but it can really bite you if you make money on selling them.

In fact, it could be one reason less than a quarter of workers who were offered equity compensation actually exercised their options or sold their shares.

Here’s how it works: If you hold your shares less than a year, the short-term capital gains tax rate equals your ordinary income tax rate, which could be up to 37% for the highest tax bracket.

For assets held longer than a year, the long-term rate can be 0%, 15%, or 20%, depending on your taxable income and filing status.

ISOs, the second kind of popular stock options, are usually reserved for high-ranking company executives and come with a big tax advantage: They can be exercised in the money without having to pay income tax on the profit. In fact, employees don’t even have to report it as income.

Hold those shares for a year or longer, and you’ll only be held liable for the long-term capital gains tax. But before you get all excited, we need to discuss the alternative minimum tax (AMT).

While ISOs aren’t taxed as income, they could be subject to AMT, which was created to get at least some taxes out of high-income individuals and corporations that otherwise manage to avoid them.

The AMT can be an extremely complicated subject. There are ways to avoid the AMT, but you should consult a tax professional to help guide you through all the rules and regulations that apply.

What Are Restricted Stock Units (RSUs) and How Do They Work?

Restricted Stock Units are also a form of equity compensation, but they are quite different in how they’re granted, vested, and regulated.

RSUs aren’t stock. They aren’t options. They’re something in between—a promise of stock at a later date. When employees are granted RSUs, the company holds onto them until they’re fully vested.

And what determines vestment is entirely up to the company. It can be a time period of several years, a key revenue milestone, or even personal performance goals. To add another layer of complexity, RSUs can vest gradually or all at once.

Another difference is how they’re valued—instead of a strike price, RSUs are priced based on the fair market value of the stock on the day they vest, or the settlement date. This means that you don’t have to worry about falling out of the money.

As long as the company’s common stock holds value, so do your RSUs. One final difference between RSUs and ESOs is that you may be able to settle your RSUs in two ways—in actual shares or the cash equivalent.

The Pros and Cons of RSUs

One good thing about RSUs is the incentive they can provide to stay with the company for a longer period of time. If your company grows during your vesting period, you could be very far in the money when your settlement date rolls around.

But even if the stock falls to a penny per share, they’re still awarded to you on your settlement date, and they’re still worth more than the $0 you paid for them.

In fact, you may only lose out on money with RSUs if you leave the company and have to forfeit any units that aren’t already vested, or if the company goes out of business.

An RSU’s lack of a strike price is sometimes referred to as downside protection. But there’s another big downside to this type of compensation that might sound familiar.

Taxes.

How Can RSUs Impact Taxes?

RSU tax rules are quite different from ESO’s, and understanding these differences can be key for not only deciding which type of compensation is better for you, but how to plan your taxes effectively.

When your RSU shares or cash equivalent are automatically delivered to you on your settlement date(s), they’re considered ordinary income and are taxed accordingly. In fact, your RSU distributions are actually added to your W2.

Another aspect to keep an eye on with taxing RSUs as income is whether the amount will bump you up a tax bracket (or two.) If you’ve only been withholding at your lower tax bracket before your vesting period, you could owe the IRS even more.

And finally, if you accept shares vs. the cash equivalent, you’ll then be subject to capital gains taxes if you sell them for a profit at a later date.

One bit of good news is that, as part of the 2017 Tax Cuts and Jobs Act , some private companies may offer deferment of income taxes on both stock options and RSUs for up to five years.

I’m Fully Vested! Now What?

So you’ve done your time, your company stock offerings have vested, and now they’re making money. What’s next? Do you immediately exercise your options, take the money and run, or let it ride in hopes of even further growth?

One school of thought is to sell your shares on the same day you receive them. If they are RSUs, you’ll still be subject to income tax but may avoid capital gains.

Another approach is to lay out your optimal timeline for cashing out. For example, there are several ways to offset your capital gains tax if you time the sale of your shares with either capital losses or other tax deductions. This is sometimes referred to as tax-loss harvesting.

While RSUs automatically convert to shares on the settlement date, you can hang onto your ESOs for longer if you feel like the company’s stock price is doing well.

And, because you don’t have to pay income taxes on ESOs until they become shares, holding onto them could also delay that payment.

There are several risks with this strategy though, including forgetting the expiration date and forfeiting all your options, or watching the company stock take a turn for the worse and dip below your strike price.

It’s a lot to consider. And for some, it may seem like more trouble than it’s worth. A recent study revealed that, of 1,000 employees who received equity compensation, less than a quarter of them have exercised their options or sold shares.

The driving factor for many of them? Fear of making a mistake, either by selling under the wrong market conditions or ending up with a huge tax bill.

If these fears are rolling around in your mind as well, the best course of action might be to consult a financial professional who might help you get the best return on your equity.

And if you want some guidance without paying exorbitant fees, you could consider opening a SoFi automated investing account. SoFi offers competitive wealth management with low cost funds, no administrative fees, low account minimums, and extensive access to a team of credentialed financial advisors.

Diversification May Bring Confidence

No one can predict the future, and nothing is a sure bet—just ask the folks who worked at Enron. Because of this, many financial advisers recommend that no single stock should represent more than 10% to 15% of your portfolio, and some cap it at only 5%.

Going above that, especially with your company stock, could put you at risk for the double whammy of losing both your salary and your stock if the business goes belly up or gets racked by scandal.

One good way to avoid the pitfalls of putting all your eggs in one basket is to buy more baskets. Portfolio diversification means distributing your money across areas that aren’t likely to respond to financial happenings in the same way. And while it won’t completely erase vulnerability, it can go a long way to reducing it.

Investing in ETFs with SoFi Invest® could potentially help diversify your portfolio by investing online in a variety of stocks for a fraction of the cost.

Start diversifying your portfolio with SoFi Invest today for no fees, the chance to trade actively or automatically, and access to financial advice on the house.


External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

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Changing Careers After Law School (and Why You May Have To)

If a waitress declared she was thinking about a career change, her friends and family probably wouldn’t raise an eyebrow. But a lawyer?

After years of law school, internships, landing a job at a law firm and climbing the ladder there, a lawyer who wants to call it quits likely would get a few questions.

As in, “Are you crazy?”

Or, “What the heck will you do instead?”

And, of course, “How on earth will you ever be able to pay off your student loan debt?”

But a juris doctorate degree isn’t a ball and chain, and just like workers in other careers, lawyers can sometimes decide to move on to something else.

Fortunately, pivoting after law school may be easier than it used to be, and there are some great alternative careers for lawyers out there—if you know where to look and how to position yourself.

Reasons Lawyers Might Consider Making a Career Switch

It might seem shocking that a lawyer would want to make a career change, after all they’ve spent years studying and preparing for this career, but it’s not all that uncommon. Television and film can make it seem like practicing law is a thrilling blend of opening and closing arguments and life-changing verdicts passed down by the jury, but there are plenty of mundane tasks in the mix.

In some cases, legal work can be relatively dull. Instead of high stakes court cases, it can be a lot of reading, research, and paperwork. Sometimes the work can be isolating as a lot of time is spent thinking of ideas and writing alone.

Beyond that, lawyers can face a ton of pressure at work, which can lead to a stressful day-to-day work environment. Lawyers have a lot on their plates: tracking deadlines, handling client demands, staying on the partner track, keeping up with the changing laws and regulations, and more.

Not only can the stress of the job be exhausting, especially at “big law” firms, getting the job done can require long hours—no matter the firm. Combine that with the fact that oftentimes a lawyer’s schedule is out of their control, dictated by the courts or bosses at a firm, it’s no wonder some lawyers are interested in looking for another career path.

As an editorial from The Young Lawyer Editorial Board for The American Lawyer points out, many employers have expectations for their workers and a method for tracking how they’re doing. It might be a sales goal that’s been set at a car dealer, a punch clock for line workers, or a certain number of clicks for an online content provider.

At most law firms, that measure is billable hours. Not how many hours the lawyers actually work, and not the quality of the work, but how many hours they can bill to a client.

“Used appropriately, billable hour standards can set clear expectations for lawyers and supply a dose of objectivity to measuring their contributions, ensuring that comparable work receives comparable reward,” the editorial board writes. “For instance, a lawyer who has had an extraordinarily busy period of firm or client work should be recognized and compensated accordingly.

“But there can be pitfalls. The legal profession is rife with examples of billable hour requirements gone bad. Too common are the stories of law firms with a published hours ­requirement, and then a de facto set of often much higher hourly expectations to advance or demonstrate commitment.”

In a stressful, highly competitive environment, the editorial continues, “Lawyers burn out, retention suffers, and work quality suffers.”

All worth it if the pay is great, right? Except the U.S. Bureau of Labor Statistics reports the 2018 median pay for a lawyer as $120,910 per year—which means half of the lawyers out there are making less than that.

And some are making far less—including contract lawyers that firms are increasingly hiring to perform the same functions as an associate, but without the expensive commitment.

The truth is, many law school graduates could be making a decent living and enjoying themselves more in a different profession.

So How Can You Prepare Your Exit Strategy?

Leaving a career as a lawyer can be a huge decision. If you’re considering making a career switch you might want to think about preparing an exit strategy. Here are some ideas for planning ahead as you think about making the jump from lawyer to the new career of your choice.

Aggressively Paying Off Student Loan Debt

Having a ton of debt hanging over your head might limit your options. Refinancing student loans could be a good choice for those who have higher interest, unsubsidized Direct Loans, Graduate PLUS loans, and/or private loans. (Federal loans carry some special benefits that are not accessible
if you refinance into a private loan—such as student loan forgiveness and forbearance—so be sure you know what you’ll lose.)

If you have solid credit and a good job (among other factors), you may qualify for a better interest rate and/or terms with a private lender that can help you get out from under that student debt faster. And some private lenders, including SoFi, consolidate and refinance both your federal and private loans into one new loan with one manageable payment.

SoFi also offers other benefits to its members, including career coaching that could help you transition to your next job. There are a few things you can do outside of refinancing to help you be better equipped to move on when and if you wish—or when something better comes along.

Creating a Budget and an Emergency Fund

Lawyers tend to make decent money right out of the gate (the problem comes later when income can start to stagnate), so it may be wise to avoid spending those years letting your lifestyle rise to the level of your income.

If you haven’t already, two ideas for that relatively high-earning time is to start building an emergency fund and putting together a reasonable budget. If you think your salary will take a hit should you leave the law, you can make it a goal to cut some costs now, before you make your move.

Using Your Time as a Lawyer to Make Connections

Building professional relationships and keeping them going could pay off when you start putting out feelers. Be professional, respectful, and if you decide to ask someone for help, be clear about what you want—advice, an introduction, or a job.

Planning Ahead

Try moving your focus from what you don’t like about your current job to how you might transfer your knowledge, skills, and passion to a new career. Lawyers can make good researchers and investigators, compliance professionals, business analysts, executives, and entrepreneurs. Some go into law enforcement. Many end up in the media or communications.

Can You Have a Non-Legal Job With a Law Degree?

Absolutely. Employers typically know that a law degree can speak volumes about intelligence and work ethic. It’s likely assumed you must be analytical, organized, and good at project management. Plus, you’re aware of the potential legal ramifications of business decisions, which can be really helpful to a company.

Probably the biggest hurdle for most people is simply giving up the dream of being an attorney. But if you can open your mind and look at all the other options, you may find something that makes you just as happy—if not more so.

Want to get your student debt under control so you can more easily move on to your dream job? Check out SoFi to see how refinancing your student loans can help.


External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF DECEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE
FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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Facing a Post-MBA Career Crossroads: How To Pull a Successful Career Pivot

You worked hard to earn your MBA and land a prestigious job upon graduation. But after a couple of years in, you might be thinking, Is this all there is? If you’re unfulfilled because you’re not passionate about the day-to-day reality of your job—don’t worry, you’re not alone. Not by a long shot.

Many MBA alumni face this challenge. While going with the highest salary offer to relieve some of the financial pressures of their student loans (and other debt) made practical sense at first, a taste of financial freedom could offer a path that allows them to explore positions better aligned with their purpose and interests.

Simply put, this could mean focusing less on the ROI, or return on investment, of their MBAs, and more on finding engaging, yet still lucrative work. Others may wish to focus on getting married and starting families; as priorities change, career tracks offering flexibility and work-life balance can become more desirable.

If you’re a few years removed from business school and now at a career crossroads, pull out that crumpled career bucket list you’ve hidden in the drawer of your bedside table. It could be a good time to complete some of your professional goals. Here are some tips on developing expert career management skills that may also help you find a great next step.

Living the (Short-Lived) Dream

The typical pathways from business school to traditional roles in finance, consulting, or technology emerge in large part because of a “herd mentality.” In other words, graduates tend to flock toward the same opportunities because it’s what’s expected of them, and certain companies spend some serious money and time courting MBAs.

As a result, few MBA grads may be able to say they accepted their first position connected to their purpose, passions, and interests. Instead, they may think of that first job as a tour of duty—a stint at a prestigious firm to gain some valuable job experience and transferable skills.

Cashing in on a huge signing bonus with a Big Three consulting firm or being wined and dined by corporate big-wigs on Wall Street can seem great at first, but maybe not so much later down the line when young MBA holders begin to feel let down and burnt out; they just want something different.

The good news is there are many career paths outside of the traditional MBA pathways, such as shifting toward human resources, marketing, or financial advising to applying your knowledge in a start-up setting.

This isn’t your parents’ generation; success doesn’t mean sticking it out with the same company for 30 years. The workforce now is frequently on the move. In fact, a study conducted last year showed that 58% of millennials surveyed planned to change jobs.

So changing jobs initially might not be the only time you change jobs (or even career fields) after obtaining your MBA. Seeking advice, marketing your personal brand, developing soft skills, and learning how to take action could all come into play again a few years down the road.

Turning the Career Corner

If you’re feeling stuck and uninspired in your current job, and you aren’t provided opportunities to learn, grow, and set yourself up for long-term success, it might be time to leave. Here are a few ideas that may help you leverage your MBA smarts to manage your career growth going forward:

Being Honest When Seeking Advice

Working with a career coach or a mentor can be a great way to help you identify your goals, and when seeking a big change, committing to complete honesty will help them guide you. Discuss all the reasons why you’re not fulfilled.

Clarify your skills and aspirations so you can craft a new, ideal job description together, and then think about the company culture you desire—the values, beliefs, and practices of an organization that will fit you best.

SoFi provides complimentary career coaching to all SoFi members. These professionals can help you plan your unique journey to transition careers, search for a new job, build a resume, and build your personal brand. When it comes to your career, a little career advice can have the potential to go a long way.

Defining Your Personal Brand

What is a “personal brand”? The term refers to who you are professionally, separate from who you are as an employee of a certain company. If you can find a way to market who you are, then you can communicate why you’d be a strong worker for a different type of job and/or field.

It can be easier to pivot in your career if you’ve consistently marketed yourself and the skills you bring to the table. If you haven’t polished your LinkedIn profile, learned to negotiate salary, and discovered the best ways to articulate your value proposition to recruiters or other firms, get to it!

Here are some suggestions for building your personal brand:

•   Create a personal website or portfolio
•   Prepare an “elevator pitch” about what you do
•   Be active on social media platforms like LinkedIn, Twitter, or Facebook
•   Find ways to network
•   Revamp your resume to reflect your brand

Become a pro at illustrating how the skills learned in your MBA program and applied in your career thus far are transferable to your next endeavor. In particular, it may be especially important to highlight the problems and challenges you’ve solved for past employers. Storytelling can be essential to helping employers see your value clearly.

Keeping on Honing the Soft Skills that Complement Your MBA Degree

Sure, you may have learned how to write a cost-benefit analysis at the first job you landed with your MBA. But you’ve likely also developed plenty of soft skills, or less concrete capabilities, such as communication, leadership, or adapting to new circumstances.

You might be at a loss for how your ability to write a budget report in your sleep will help you land a job in public relations, but your talents leading a group sure will.

Some of the top soft skills employers were seeking in 2019 included things like conflict management, emotional intelligence, time management, emotional intelligence, and communication.

A great personality, the ability to foster trust, and top-notch relational skills, such as being a cooperative and engaged team member, are also all attributes of successful professionals.

Do any of those examples sound like soft skills you’ve acquired at your job or in your MBA courses? These abilities help make up your personal brand, and you can highlight them on your resume, list them under “Skills and Endorsements” on your LinkedIn profile, and talk about them in interviews.

If you find you have strong conflict and time management skills, for example, perhaps you could continue to take on responsibilities at your current job that hone those areas of expertise. If you struggle with communication, you might consider working to improve before you switch jobs to make yourself an even more desirable employee.

Act More, Worry Less

Don’t spend months just thinking about what it might be like to work at a new company or in a new industry; instead, do your research so you feel more confident taking action. If you haven’t pinpointed your passion, it might make sense to reach out to people who are doing things you find appealing; maybe you could set up coffee or lunch to listen and learn.

If you’re a consultant, perhaps talk to entrepreneurs to discover what it takes to run a startup. Be inquisitive; have conversations with alumni and people you follow or admire on LinkedIn to discover what their roles entail and what their company culture is like.

Two years post-degree, you probably have peers spread out across a wide variety of enterprises. Try connecting with them to pick their brains about what they find most engaging about their work and get intel about possible job openings. You just might get turned on to a career trajectory you never imagined.

Taking action doesn’t mean you need to rush the process, though. Yes, you can take measurable steps toward starting a new career, but that doesn’t necessarily mean it’s time to address and stamp your resignation letter just yet. Taking steps towards your goal is simply setting yourself up for success so that when that day does come to make a change, you’ll be ready.

Taking a Risk

Remember, people who enjoy a gratifying MBA-supported career have likely taken a leap of faith somewhere along the way. And let’s face it, if you choose to walk away from a substantial salary, you may face some risks.

So you might have to make some sacrifices, specifically financial ones. If you proceed in a carefully thought out way, however, you can protect your finances and protect your mental health. Here are a few options that could help you prepare for the risks you could face in changing careers:

•   Build an emergency fund in case your income takes a temporary hit
•   Secure a new job before leaving your old one, or at least submit several job applications
•   Volunteer in the field you want to enter to obtain relevant experience
•   Avoid rushing the process
•   Attend networking events
•   Take a class related to your new career field
•   Seek out a career coach

If student loans payments are still a factor, include them in your transition plan. One option to consider is student loan refinancing, which could help those with student loan debt lower their interest rate or secure a more manageable payment plan.

Refinancing won’t be the right solution for everyone, especially those who are enrolled in federal student loan repayment programs like income-driven repayment plans, since refinancing eliminates federal student loans from those protections and benefits.

Those interested in refinancing, however, might want to take a look at what SoFi has to offer. Qualified borrowers can secure competitive interest rates with no hidden fees—plus get access to career coaching, which could help those hoping to make a career change in the future. Those interested in learning more can get a quote to see if they pre-qualify in just a few minutes.

Student loans don’t have to keep you from pursuing your dream career. Learn more about how refinancing with SoFi could play a role in your journey to repaying your student loans.

Many people who have found themselves unemployed during COVID have wondered if they should take a temporary job or wait for their next big opportunity. Career Expert Ashley Stahl has a good test to see which path makes the most sense for you.


External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
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SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Business Oversight under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF DECEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE
FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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How to Open Your First IRA

If you’re considering opening your first IRA, or Individual Retirement Account, good for you! After all, saving for your retirement may be the biggest financial goal you’ll ever set.

And although with a traditional IRA you can’t contribute past age 70 ½, with a Roth IRA there’s no cut off. Either way, you likely have ample time to open an IRA, getting you moving towards that big financial goal.

An IRA lets you invest your savings so that your money will hopefully grow over time into a healthy nest egg.

Plus, it can deliver attractive tax perks and offers you an opportunity to save for retirement, especially if you don’t have an employer-sponsored 401(k) or have maxed it out already. So what are you waiting for?

Opening your first IRA can be a bit like waking up early or eating eight servings of vegetables per day. Even though it could be a smart thing to do, you’re intimidated because it seems really hard—but once you get started, it may not be so scary.

Doing the responsible thing doesn’t have to be difficult. Here’s a step-by-step guide for help in getting into the IRA game.

Steps to Opening an IRA

Step 1: Choosing the IRA That’s Best for You

There are several types of IRAs, with traditional and Roth IRAs as the most common types. Both allow you to put a certain amount toward retirement each year and invest in an array of assets. They differ in several key ways.

Roth IRA Accounts

First, you can only contribute to a Roth IRA if your income falls below a certain amount. For 2019 & 2020, you can contribute up to $6,000 per year if you’re single and your modified adjusted gross income, or AGI, is under $122,000. For age 50 and older you can contribute an additional $1,000.

If you’re married and filing jointly, your AGI can be up to $196,000 in 2020. If you earn more than the designated amount, you can either contribute less money or look into opening a traditional IRA instead.

Second, the type of IRA will affect your tax situation. With a Roth IRA, your contributions are made with after tax income sowhen you withdraw money upon retirement, you don’t have to pay taxes again.

Third, you can contribute money to your Roth IRA at any age. This means that if you are, say, 85 and still earning income, you can still contribute a portion to your retirement account.

Finally, it’s usually easier to withdraw contributions from a Roth IRA than a traditional IRA without being penalized. Yes, there are rules, but they’re not as strict as the regulations for traditional accounts.

If you’re eligible, you may want to go with a Roth IRA if you typically get a tax refund and expect to be in a similar or higher tax bracket when you retire (for example, if you plan to have substantial income from a business, investments, or work). It is recommended that you consult a tax professional to help work through the numbers.

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Traditional IRA Accounts

If you earn a taxable income, you can open a traditional IRA regardless of how much you make per year.

The most notable difference between traditional and Roth IRA accounts is probably that traditional IRAs allow you to deduct your contributions on your tax returns now, meaning you pay taxes on distributions when you retire.

There are a couple other important differences, too. While you can theoretically contribute to a Roth IRA for your entire lifetime, you must stop putting money in your traditional IRA at age 70 1/2.

You’ll also pay a 10% penalty tax if you withdraw money from your traditional IRA before age 59 1/2, with a few exceptions.

It’s often better to go with a traditional IRA if you pay a lot in taxes now and think you’ll be in a lower tax bracket after retirement than in the year they were made. This is because you’ll be saving on a higher tax you’d be paying earlier (vs. the lower tax you’d be paying later, since you’d be in a lower tax bracket).

Still confused? Consult our IRA Calculator for help deciding which account may be right for you.

SEP IRA Accounts

With the number of self-employed workers on the rise, it’s worth mentioning that there’s a third type of IRA you can consider: a SEP IRA. A SEP IRA, or Simplified Employee Pension, can be set up by either an employer at a small business or by someone who is self-employed.

For employers, it gives them a tax deduction when they contribute to their employees’ IRAs, and also lets them contribute on a “discretionary basis” (meaning that the employer doesn’t have to contribute in years where it’s not as financially feasible for the company.) This option may also allow you to contribute more than other IRAs, depending on your income.

Again, there are several kinds of IRAs, so it’s possible a type other than these three might be the right fit for you.

Step 2: Opening an Account

You can open an IRA at a brokerage, mutual fund company, or other financial services provider, including SoFi Invest®, which makes it easy to open an IRA online and transfer money from your bank electronically.

If you are leaving a job with an employee-sponsored retirement plan, you can roll over your 401(k) into an Traditional IRA to potentially give yourself better investment options and lower fees.

However, it’s important to note that while you can rollover your 401(k) into a traditional IRA and not have to pay taxes on it upfront.

Step 3: Making Contributions

As of 2020, you can contribute up to $6,000 a year to a traditional or Roth IRA, or up to $7,000 if you’re 50 or older. If you take home more than the maximum earnings allowed for a Roth IRA but still prefer a Roth over traditional account, you might be able to contribute a reduced amount.

Check out the IRS’s Roth IRA webpage to determine how much you can contribute. In most cases, you may want to throw in as much as you can up to that amount each year to take full advantage of the power of compound interest.

A retirement calculator can help you figure out whether you’re on track. A quick rule of thumb that many financial advisors use: By the time you’re 30, it’s typically good to have the equivalent of one year’s salary saved.

If you’re rolling money over from a 401(k), there’s no limit to how much you can add to an IRA at that time as this process is simply adding money from your current 401k into an IRA account.

Note that you can withdraw cash without paying taxes or penalties in certain situations (for instance, you can withdraw up to $10,000 when purchasing your first home), but you may not want to treat your retirement account like a piggy bank, because there are limits.

Step 4: Investing Your Funds

If retirement is still a long way out, you may not want to let your money sit around in cash. Because of inflation, letting your money sit around in cash form (even with an interest-bearing savings account) may mean a decrease in its purchasing power over time—making it less likely for you to reach your purchasing goals.

Instead, you may want to consider investing it in a range of well-diversified index funds. Though index funds, like all investing, carries risk of loss, over time they may provide you with potentially better returns.

One possible way to invest is to choose a “target date fund.” This is a type of mutual fund, or a program that combines assets like stocks and bonds. A target date fund is geared toward the year you plan to retire, and will automatically update your mix of investments so they’re more aggressive earlier in life and more conservative as you approach retirement.

Setting up a target date fund is only one way to invest through your IRA. You could also invest in other types of mutual funds, or in individual stocks, low-cost index funds, or exchange-traded funds.

Some people prefer to tackle investing on their own, while others prefer to turn to professionals for help.

Taking the Next Step Now

Getting started on saving for your retirement doesn’t have to be difficult. SoFi Invest® makes opening an IRA easy. Sign up for an investment account with SoFi online, in less than five minutes.

Our technology can help you pick an appropriate mix of investments based on your age and retirement goals, and you can be as involved in the investment process as you want to be.

Going through a human professional or robo-advisor often may involve extra expenses, but SoFi doesn’t assess any management or transaction fees.

And if you have any questions or want personalized advice, you can set up a call with a SoFi financial planner—absolutely complimentary.

Open an IRA with SoFi Invest and track your account completely online.


External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

Advisory services are offered through SoFi Wealth, LLC an SEC-registered Investment adviser. Information about SoFi Wealth’s advisory operations, services, and fees is set forth in SoFi Wealth’s current Form ADV Part 2 (Brochure), a copy of which is available upon request and at adviserinfo.sec.gov .

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