Stripe is buying back shares at $35.50, which implies a valuation of $91.5B for the company. While this valuation remains just shy of the peak valuation of $95B in 2021, it’s a significant increase from the $70B valuation in 2024 and a positive signal for the rebound of FinTech company valuations.
As I have previously written, the decision to participate in this current tender offer is very much a personal decision. In this post, I’m going to outline two not-so-obvious reasons why you might consider selling a portion of your shares.
Use RSUs to Build Tax-Free Wealth via After-Tax 401k Contributions
Stripe is one of the few private companies that offer employees the ability to make “After-Tax” 401k contributions. Another common name for this strategy is the “Mega-Backdoor Roth”. For tech professionals who are vesting RSUs in addition to their cash compensation, one opportunity to leverage a tax-advantaged account is by electing to make after-tax 401k contributions. While the after-tax contributions will not lower your taxes in 2025, the real magic lies when you convert these dollars into your Roth 401k. All this can be done automatically with an initial call to Fidelity to establish automatic in-plan conversions.
For those unfamiliar with this strategy, let’s unpack how this works and why it’s an attractive option to consider. In 2025, the IRS allows employees to defer up to a maximum of $23,500 into a Pre-Tax 401k. However, the IRS actually has a much higher total contribution limit for “Defined Contribution” plans, as defined under section 415(c). In 2025, the total contribution limit to a defined contribution plan is $70,000. This total is the sum of the following contribution sources:
- Employee deferrals
- Employer contributions
- After-Tax contributions
As an example, you could contribute $23,500 to your Pre-Tax 401k, which will help to lower your tax liability in the current year. Let’s assume Stripe contributes $2,000 on your behalf, which results in total contributions of $25,500. Based on the $70,000 maximum contribution limit, this would enable you to contribute up to $44,500 to your after-tax 401k. Since most individuals may not be able to contribute an extra $44,500 via their salary alone, a Stripe employee could leverage this tender offer to generate sufficient cash proceeds to supplement their lifestyle expenses and then increase their After-Tax 401k contributions for the remainder of 2025.
For individuals who desire to build a “tax-free” bucket of wealth for their future, after-tax contributions and Roth conversions are a great option to super-charge their retirement savings. Additionally, the income limits to contribute directly to a Roth IRA can preclude many high-income individuals from building a tax-free retirement savings account. It’s important to note that these income limits do notapply to after-tax or Roth 401k contributions. Some individuals may still pursue Backdoor Roth IRA contributions, however, the annual IRA contribution limit of $7,000 is far less than what one can contribute to a tax-free account via their 401k plan.
Exercising NSOs & the Ability to Reclaim State AMT Credits
For anyone who has vested equity in multiple states, this tender offer may present a unique opportunity for you. Private company equity compensation presents a lot of nuances from a tax perspective and vesting equity in multiple states further adds to the complexities. A key factor in the tax equation is where you lived when you “earned” the equity. For individuals at a private company, this typically means your state of residence throughout your vesting period. There are a few states, such as California and Colorado, that impose a state-level Alternative Minimum Tax, which tends to affect those who have been granted Incentive Stock Options (ISOs) and have seen their company’s valuation rapidly increase over their vesting period.
If you happened to incur Alternative Minimum Tax when exercising an ISO grant that vested while residing in a state like California, there is a silver-lining. You are eligible to recover these taxes in the form of a tax credit. However, if you no longer reside in the state that you incurred this tax, it’s unlikely that you would continue filing a tax return in that state. Unless… you have other equity grants that also vested while you were a resident of that state, therefore resulting in taxable income at the state level.
Two common taxable events are exercising Non-Qualified Stock Options (NSOs) or if you received a Restricted Stock Unit (RSUs) grant that had partially vested while living in another state. Upon these events, taxes will typically be automatically withheld based on your state of residence at the time of vesting. However, I encourage my clients to verify this with a tax advisor to ensure the appropriate allocation of income has been assigned to each grant.
Given Stripe’s current valuation of $91.5B, many employees who were originally granted stock options likely have a significant “bargain element” associated with their stock option grant. The bargain element refers to the spread between Stripe’s current Fair Market Value and the Strike Price of their option grant. For anyone who holds NSOs, this spread results in ordinary income at the time of exercise, therefore creating a taxable event.
The income associated with the options that vested in California will be attributed to one’s California state tax return due to the “allocation ratio”. This taxable income recognized at the state level enables one to claim California AMT credits. In addition to recovering outstanding AMT credits, exercising NSOs could also be beneficial to anyone who is optimistic about Stripe’s valuation continuing to increase in the future. Upon exercising an NSO, you start the holding period to receive capital gains treatment on any further upside from $35.50.
When making equity decisions, there is never a “one-size-fits-all” approach. I hope this article helped to provide fresh insights and two potential planning opportunities to consider with this tender offer. If you’re looking for guidance on how to navigate this tender offer for your personal situation, I’d love the opportunity to chat through this decision with you.