If you're nearing retirement or already receiving Social Security benefits, you might be wondering: Do stock options count toward my Social Security earnings? It's a great question, and the answer can affect your benefit amount and tax situation.

At Clarity Financial, we help clients in Stephenson, Winchester, and Northern Virginia understand how different types of income impact their Social Security benefits. Let's break it down in simple terms.

What Are Stock Options?

Stock options are a form of compensation that companies offer to employees. They give you the right to buy company stock at a set price, known as the "strike price," at a future date. There are two main types:

• Nonqualified Stock Options (NSOs): These are the most common. When you exercise NSOs, the difference between the strike price and the market value of the stock is considered income.

• Incentive Stock Options (ISOs): These have special tax treatment but come with specific requirements.

How Do Stock Options Affect Social Security Earnings?

The key factor here is whether the income from stock options is considered "earned income" by the Social Security Administration (SSA). Earned income includes wages from a job or net earnings from self-employment. Here's how different scenarios play out:

1. Exercising Stock Options Before Starting Social Security

If you exercise stock options before you begin receiving Social Security benefits, the income from the exercise is not counted toward your Social Security earnings. This means it won't affect your benefit amount or subject you to the earnings test.

2. Exercising Stock Options After Starting Social Security

If you're already receiving Social Security benefits and then exercise stock options, the income from the exercise can count toward your earnings. This is important because if you haven't reached your full retirement age (FRA), earning above certain limits can reduce your Social Security benefits.

For 2025, the earnings limits are:

• Under full retirement age: $23,400 per year

• In the year you reach full retirement age: $62,160 per year

If your income exceeds these limits, Social Security will reduce your benefits. However, once you reach FRA, there's no limit on how much you can earn.

3. Selling Stock Acquired Through Stock Options

Selling stock that you acquired through exercising options doesn't count as earned income. Capital gains from selling stock are considered investment income and do not affect your Social Security benefits.

Why Does This Matter?

Understanding how stock options impact your Social Security earnings is crucial for effective retirement planning. Exercising stock options can provide additional income, but if not timed correctly, it could reduce your Social Security benefits.

At Clarity Financial, we work with clients in Stephenson, Winchester, and Northern Virginia to create personalized retirement strategies that consider all sources of income, including stock options. This ensures that you're maximizing your benefits and minimizing any potential reductions.

Next Steps

If you're considering exercising stock options or are unsure how they might affect your Social Security benefits, it's essential to consult with a financial advisor. At Clarity Financial, we're here to help you navigate these decisions and plan for a secure retirement.

Contact us today to schedule a consultation and learn more about how stock options and other income sources can impact your Social Security benefits.