There is no easy way to put it. Your Okta stock compensation is complicated.

And depending on what type of equity you have, how many you have, and other equity you already own –along with all your other unique financial planning needs– understanding what to do with your Okta stock can become even more difficult to figure out.

Depending on when you joined and your role, you could have a few types of Okta equity.

If you are a more recent hire, particularly post IPO, your equity package could consist of some sort of combination of Restricted Stock Units (RSUs) and the Employee Stock Purchase Plan (ESPP) .

If you have been around a while, you might have both of those, plus stock options.

An equity grant of Restricted Stock Units (RSUs) is the primary way that Okta employees receive Okta stock. One unit of Restricted Stock conveys your right to receive one common share of Okta stock at a specific time in the future according to a designated “vesting” schedule.

Once your shares vest, you own the shares outright just like anyone else that owns Okta Stock.

OKTA’S RSU VESTING SCHEDULE

Your RSUs vest over a four-year period, so long as you are employed with Okta.

Once shares vest, they are yours to keep without any conditions. But if you leave before full vesting in a given equity grant, you forfeit any unvested RSUs.

For new hires, 25% of a grant’s RSUs vest after one year. The remaining 75% vest evenly over the following 12 quarters.

So if you were granted at 100 shares of Okta, it would be paid out like this:

• At the one year mark: 25% (25 shares)

• Every quarter for the next 12 quarters: 8.33% (8 or 9 shares)

If you get a promotional or annual grant, your RSUs will vest evenly over the following 16 quarter.

So if you got a promotion and were granted an additional 100 shares, it would be paid out:

• Each quarter for the next 16 quarters: 6.25% (6 or 7 shares)

Through the Okta ESPP, you can buy shares of Okta stock at a minimum 15% discount.

Here’s a couple key details:

✅ You choose how much to contribute:

Anywhere from 1% to 15% of your eligible pay.

But there are certain limits

✅ Enroll online in May or November

You must enroll for the ESPP while the enrollment period is open.

If you miss the window, you’ll need to wait until the next open enrollment period.

✅ Shares are purchased twice a year on June 20 and December 20

The amount you pay for the shares is the lower of two prices—the offering date price or the purchase date price.

The 15% discount is applied to the lowest of the two prices.

✅Once purchased, your Okta shares are yours to keep

When the purchase period ends, shares are purchased for you and are deposited into your E*TRADE account.

At that point, you own your Okta shares, and you decide how long to hold them.

It’s great to have all this information, but how do you put it all together?

And most of all, how do you put it together for your unique circumstances?

That’s where financial planning comes into play (shameless plug, raises hand). There is no one answer, but here are some questions we help our clients answer to create a strategy:

* With stock options, when should I exercise and how much?

* How do you want to pay for the exercise?

* I’ve held on to a bunch of Okta stock. Should I diversify? If so, how?

* What's the tax hit going to be?

* What mistakes can we avoid?

* If I give to charity, how can I incorporate this into my plan?

The Okta 401 (k) plan allows for contribution in three ways; as Traditional 401(k) contributions, as Roth 401(k) contributions, or as non-Roth after tax contributions

BREAKING DOWN THE TAX TREATMENT OF EACH OPTION

Traditional: These are made pre-tax aka save on taxes now. Earnings grow tax deferred. In retirement, you will pay taxes when you take the money out.

Save now, Pay taxes later

Roth: You will pay taxes on the money you put in today. Earnings and contributions grow tax free. When you take out your money in retirement, you won’t owe any taxes.

Pay taxes now, save later

After-Tax: You will pay taxes on the money you put in today. Down the road, you won’t pay taxes on your contributions, but you will pay taxes on any earnings. This is the most complicated of the three, but in the right circumstances it can be a great planning opportunity. *See below for Mega Backdoor Roth information

Pay some tax now, and some tax later

Okta will match you dollar-for-dollar up to $208.34 per paycheck. This applies to both your pre-tax and Roth contributions. The annual maximum is $5,000.

So done correctly, if you put in $5,000, Okta will match $5,000. If you put in $2,500, Okta will match $2,500. But if you put in $15,000, the Okta match will cap at $5,000.

There’s very few scenarios where you shouldn’t be contributing a minimum of $5,000 to your Okta 401k.

Everyone’s favorite agency, the IRS, only lets you put so much money into your 401k each year.

For 2022, your total contributions are capped at $20,500 (total of Roth + Traditional). If you are 50 and older, you can make an additional $6,500 “catch-up contribution.”

So you could do $20,500 to the Roth.

Or $20,500 to the Traditional.

Or $5,500 to the Roth and $15,000 to the Traditional.

But you can’t do $15,000 Roth and $15,000 Traditional. I appreciate the effort, but that’s over the $20,500 limit.

Note: If you switch employers mid year, make sure the new job knows how much you contributed for the year!

AFTER-TAX CONTRIBUTIONS AT OKTA

Okta also has an After-Tax 401(k) that you can contribute to on top of the $20,500 we already talked about. The IRS allows you (as an Okta employee) to contribute a maximum of $61,000 to your 401(k) across all contribution types. This includes: Traditional (Pre-tax) + Roth contributions, + Okta 401(k) match + the After-Tax portion.

(Important reminder: an After-Tax 401(k) is separate and different from contributing to the Roth 401(k) as we’ve described it above.)

MEGA BACKDOOR ROTH IRA AT OKTA

Here’s why we LOVE Okta’s plan & in particular what you can do to maximize it.

You can do what is called an in-plan conversion and convert these After-Tax dollars into Roth (a tax-free maneuver).

So you can put extra away for retirement and supercharge your Roth.

Then these funds won’t just grow tax-deferred, those earnings will also be tax-free when you take the money out in retirement (just like all other Roth accounts!)

To do this, you will need to call Fidelity at 800-294-4015 to request a conversion. You can set up an automatic conversion of all your future after-tax contributions.

This creates a unique planning opportunity for high income earners. Talk with our team to learn more.

Should you be maxing out your 401k each year?

Resoundingly…it depends.

You’re probably sick of me saying that.

But it’s true.

Traditional financial wisdom will tell you that you should focus on maxing out retirement accounts before anything else.

But deciding how much to put into retirement accounts can’t be done in a vacuum!

It completely depends on where you are at and what your goals are.

Consider questions like these:

• Are you saving up for a house in 3 years and need help building your down payment to get there?

• Do you want to take a year off / sabbatical in 5 years?

• Do you want to send your kids to private school in the next few years?

• Are you planning on retiring before age 60?

While the Okta 401k is great because it offers tax advantages (now or in the future) and helps with retirement, what about money before retirement?

Depending on your goals and where you live, you may have different priorities.