For Example Google Options :

Assume that a Google employee was granted options to

buy 1000 shares of common stock at 300 two years ago

which are now vested.

He believes that there is a high probability that

he will be at the company for at least 5-6 more years.

If we assume that the present market price is $471 (as it was

on May 4, 2007) and that the ESOs had an expected time

remaining of 5.5 years with a 30 volatility and a 5% interest

rate, the "Theoretical Value" of the ESOs would be $258,000.

That equals $171 of intrinsic value and $87 of time premium.

If the options are exercised now, the time premium is

forfeited back to the company and a current tax of up

to 40% of the intrinsic becomes due. So he nets $102,600

after tax from options valued at $258,000 pre exercise.

Withdrawal from a Traditional IRA at age 50

Assume the value of the assets in your IRA equals $258,000.

You decide to prematurely withdraw all of the assets. You will

pay a 10% penalty ($ 25,800) plus income tax on the

$258,000 perhaps at a 40% rate leaving a net $129,000.

of course, the $129,000 is more than the $102,600.

______________________________________________

The $258,000 of value in the IRA is worth a bit more than

the $258,000 of theoretical value in the ESOs because if the

IRA is not disturbed till retirement, there would be favorable

tax treament as the employee does not have to liquidate

his IRA untill he reaches 70 years old.

Considering everything, the premature liquidating of the

IRA has similar penalties compared with the penalties of

premature exercises and sale of stock, especially when there

is substantial time remaining on an option and the volatility

is moderate to high.

No advisor should encourage a premature liquidation of a

401 K plan or IRA (absent an emergency or hardship).

So why would that same advisors encourage premature

liquidations of employee stock options?

But that is exactly what is done by thousands of "Wealth

Managers" and "Financial Consultants".

John