One day you’re reviewing next quarter’s roadmap. The next, you’re sitting in a conference room being told your role has been eliminated. There’s a severance agreement on the table, a 60-day deadline on your stock options, and a head full of noise.
If you’ve been at a mid-to-large company for any length of time, there’s a good chance you’re walking away with a complicated financial picture: vested RSUs, unvested grants that may or may not accelerate, stock options with exercise deadlines, a concentrated position in company shares, a 401(k) that needs a new home, and severance terms that interact with all of it.
The emotional weight of a layoff is real. But the financial decisions you make in the next 30 to 90 days can have a six-figure impact on your net worth — and most of them are irreversible. This is not the time to wing it.
The First 72 Hours: Stop, Inventory, Don’t Act
The instinct after a layoff is to do something. Call your broker. Roll your 401(k). Exercise your options. Sell everything. The better move is to do nothing — for a few days — while you build a clear picture of what you actually have.
Pull together a complete inventory. You need to know exactly what’s on the table before you can make informed decisions about any of it. That means documenting your vested RSUs and their current market value, any unvested RSUs and whether your separation agreement accelerates vesting, stock options (both ISOs and NSOs) along with their strike prices and expiration dates, your company stock held in a brokerage account, your 401(k) balance and how it’s allocated, the terms of your severance package, and your COBRA or health insurance continuation options.
This inventory becomes the foundation for every decision that follows. Without it, you’re making choices in the dark.
Stock Options: The Clock Is Already Ticking
If you have vested stock options — particularly incentive stock options (ISOs) — this is likely your most time-sensitive issue. Most companies give departing employees 90 days to exercise vested options before they expire. Some give as few as 30.
The key question isn’t “should I exercise?” It’s “what’s the tax impact of exercising, and can I afford it?”
Exercising ISOs may trigger the Alternative Minimum Tax (AMT), which can create a significant and unexpected tax bill. The spread between your strike price and the current market value is considered AMT income in the year you exercise — even if you don’t sell a single share. For a large option position, this can mean owing tens of thousands of dollars in April with no liquidity to pay it unless you sell some of the shares.
NSOs (non-qualified stock options) are more straightforward: the spread is taxed as ordinary income at exercise, and your company will typically withhold taxes. But the decision about how many to exercise and when still matters, especially if you’re going to be in a lower tax bracket this year due to the layoff.
If the stock is underwater — meaning the current price is below your strike price — the options are worthless and you can let them expire. That’s not a loss you need to grieve; it’s a decision that makes itself.
RSUs and Concentrated Stock: The Diversification Question
If you’ve been at the company for several years, there’s a reasonable chance that a meaningful percentage of your net worth is sitting in a single stock. This is concentration risk, and it’s one of the most common — and most underappreciated — financial vulnerabilities among corporate professionals.
The emotional attachment is understandable. You worked there. You believe in the product. Maybe the stock has done well. But from a portfolio construction standpoint, having 20%, 30%, or 40% of your wealth in a single equity is a risk that no institutional investor would take voluntarily.
A layoff can actually be a natural inflection point to address concentration. You no longer have a reason to hold for loyalty or optics. The question becomes purely financial: given your overall wealth picture, your tax situation, and your timeline, what’s the right pace of diversification?
That answer is different for everyone, and it depends on factors like your cost basis, the current capital gains rate environment, whether you have losses elsewhere to offset, and how soon you’ll need the money. A thoughtful diversification plan executed over 12 to 18 months may be more tax-efficient than a single large sale. But there are cases where selling quickly makes sense too — especially if you need liquidity or the position is genuinely outsized.
The 401(k) Rollover: Don’t Default Into a Bad Decision
You’ll need to decide what to do with your 401(k). The options are typically to leave it in your former employer’s plan, roll it into an IRA, roll it into a new employer’s plan (if you have one), or cash it out.
Cashing out is almost always the wrong answer. You’ll owe income tax on the entire balance plus a 10% early withdrawal penalty if you’re under 59½. For a $500,000 account, that penalty alone is $50,000.
The real decision is between leaving it and rolling into an IRA. An IRA typically gives you more investment options and more control, but there are edge cases where the employer plan is better — for instance, if the plan offers institutional share classes with lower fees, or if you’re between 55 and 59½ (the “Rule of 55” allows penalty-free withdrawals from a 401(k) after separation from service at age 55 or older, which doesn’t apply to IRAs).
There’s also the question of Roth conversions. If you’re going to have a lower-income year due to the layoff, it may be an ideal time to convert some or all of a traditional 401(k) or IRA to a Roth. You’ll pay taxes on the conversion, but at a potentially lower rate than you’d pay in future years. This is the kind of decision that looks small on paper but can compound meaningfully over a decade or two.
Severance: Read the Fine Print
Severance packages vary widely, but they almost always come with strings. Before you sign, understand what you’re agreeing to — and what you might be able to negotiate.
Common items worth examining include the non-compete clause (scope, duration, enforceability in your state), how unvested equity is being treated (some companies accelerate vesting for laid-off employees; others don’t), the COBRA subsidy or health insurance continuation, outplacement services, and the deadline for exercising stock options.
Some of these terms are negotiable, especially in a large layoff where the company is trying to manage reputational risk. It doesn’t hurt to ask — particularly around option exercise windows and equity acceleration. An extra 30 days on your option deadline can be worth a lot of money if you need time to arrange financing or plan the tax impact.
Health Insurance: Don’t Let It Lapse
This is the unsexy but urgent one. COBRA gives you the right to continue your employer’s health insurance for up to 18 months, but you’ll pay the full premium (employer and employee portions) plus a 2% administrative fee. For a family plan, that can easily run $2,000 to $2,500 per month.
Depending on your expected income for the year, you may qualify for subsidized coverage through the ACA marketplace. A layoff triggers a Special Enrollment Period, so you don’t have to wait for open enrollment. For some people, marketplace coverage is significantly cheaper than COBRA — but it depends on your projected income and household size.
The key is making this decision within 60 days. After that, your COBRA election window closes.
The Tax Year as a Whole: Think in Twelve-Month Blocks
One of the biggest mistakes people make after a layoff is treating each financial decision in isolation. But your stock option exercise, your 401(k) rollover, your Roth conversion, your capital gains from selling company stock, and your severance income all land on the same tax return.
The question isn’t just “should I exercise these options?” It’s “what does my total taxable income look like this year, and how do all of these decisions interact?”
If you received six months of severance, that’s income. If you exercise options, that may be additional income (or AMT). If you do a Roth conversion, that’s income too. Stack all of those on top of each other and you might push yourself into a higher bracket — or trigger phaseouts on deductions and credits you were counting on.
This is where having a coordinated view of your finances matters enormously. Each decision is fine on its own. It’s the interaction between them that creates either waste or efficiency.
What a Coordinated Approach Looks Like
The right sequence of decisions after a layoff isn’t the same for everyone. But the framework is:
Week 1: Full inventory of assets, equity, options, benefits, and severance terms. No action yet — just clarity.
Weeks 2–4: Model the tax implications of exercising options, selling stock, doing Roth conversions, and collecting severance. Run the numbers together, not separately.
Month 2: Execute the time-sensitive decisions — option exercises, COBRA vs. marketplace, signing the severance agreement (if there’s a deadline).
Months 2–6: Begin a deliberate diversification strategy for concentrated stock. Consider tax-loss harvesting opportunities if you have other positions at a loss.
Ongoing: Reassess cash flow needs, adjust spending, and update your financial plan for the new reality — whether that’s a new job, a career change, or early retirement.
This Is Exactly What We Help With
At Bayworth Capital, we work with executives and professionals navigating exactly this kind of transition. The combination of equity compensation, concentrated stock, tax planning, and income disruption is familiar territory for us.
If you’re in this situation and want to think through your options with someone who understands the moving parts, we offer a complimentary 30-minute wealth review. No sales pitch — just a structured conversation about where you stand and what to prioritize.
The decisions you make in the next 90 days matter. They deserve more than guesswork.