Client Snapshot
- Client: 37-year-old software engineer and Anthropic employee
- Family: Married with two children
- Net Worth Concentration: 93% in Anthropic equity
- Equity Holdings: $21 million in vested Anthropic equity, including ISOs, NSOs, and RSUs
- Primary Goals: Buy a home, save for college for two children, and achieve early financial independence
- Key Challenges: Significant concentration in Anthropic equity and the potential tax impact of selling different types of equity compensation
- Planning Focus: Equity compensation planning, tax planning, diversification, financial planning, and early financial independence
The Client’s Goals
Chris and Sarah wanted to use Chris’s Anthropic equity to build long-term financial security without taking unnecessary investment or tax risks. Their primary goals were to:
- Buy a home: Use a portion of Chris’s Anthropic equity to purchase a home in San Francisco.
- Save for college: Build enough private school and college savings to help cover education costs for their two children.
- Achieve early financial independence: Determine how much Anthropic equity they need to diversify in order to reach financial independence sooner.
- Reduce concentration risk: Gradually reduce their exposure to Anthropic from 93% of their net worth to below 20%.
- Minimize taxes: Develop a tax-efficient strategy for selling Chris’s ISOs, NSOs, and RSUs while building a more diversified investment portfolio.
My client, Chris, was a 37-year-old software engineer who held $21M of vested Anthropic equity, which represented 93% of his net worth. He reached out to get my help to minimize taxes and diversify out of his Anthropic equity.
First, I helped Chris understand how concentrated he was in Anthropic equity, with 93% of his net worth in a single company’s stock and the risks he was taking with that high level of concentration.
Second, I helped Chris and his wife Sarah identify their key goals, which included buying a house, saving for private school and college for their two kids, and getting to early financial independence. Then we built a financial plan to understand how they could use his Anthropic equity to achieve their goals.
Third, I helped Chris develop a selling plan for his Anthropic equity which would minimize taxes for each type of equity, including his ISOs, NSOs, and RSUs. We developed an exercise strategy for his Anthropic ISOs that enabled him to minimize his taxes when selling his ISOs by paying the lower federal long-term capital gains tax rate of 20% vs. the higher Federal ordinary income tax rate of up to 37%. This saved him up to 17% in taxes, or $170k on each $1M in ISOs.
We also used a tax strategy called direct indexing, which enabled him to generate tax losses that he used to offset Anthropic gains and pay $0 in taxes on those gains. This plan enabled him to both minimize his taxes and build a more diversified portfolio to reduce his concentration risk in Anthropic.
Chris bought a house in San Francisco after starting to execute his selling plan and minimize taxes. He also has a plan for before and after a potential Anthropic IPO to diversify out of enough Anthropic equity to reach his goals of saving for private school and college and achieving early financial independence. At the end of the plan, Chris will have diversified enough out of his Anthropic equity to both reduce his concentration below 20% and achieve his most important financial goals.
Why This Approach Made Sense
Chris had a significant portion of his net worth tied to Anthropic equity, so simply selling shares without a broader plan could have resulted in both short-sighted decisions and unnecessary taxes. We took a coordinated approach that considered his different types of equity compensation, his family’s financial goals, and the potential tax consequences of selling.
By developing a selling strategy for his ISOs, NSOs, and RSUs and incorporating direct indexing to generate tax losses, we were able to build a plan designed to minimize his taxes while gradually diversifying his portfolio. This gave Chris a framework for deciding how much Anthropic equity to sell and when, rather than making investment decisions based solely on the stock price.
The Outcome
Chris was able to purchase a home in San Francisco while beginning to execute his equity diversification plan. He also has a strategy for diversifying before and after a potential Anthropic IPO to fund his family’s most important financial goals.
The plan is designed to help Chris and Sarah:
- Fund private school and college savings for their two children
- Achieve early financial independence
- Reduce their Anthropic concentration from 93% to below 20%
- Build a more diversified portfolio while minimizing taxes on selling his Anthropic equity
Disclaimer:
This is a hypothetical illustration used to demonstrate financial planning concepts. Although it combines the experiences of actual clients, it does not constitute a testimonial or endorsement. Hypothetical financial planning illustrations have inherent limitations, including that they are prepared with the benefit of hindsight, and they do not reflect the actual results of any specific client situation.
