How long does an IPO lockup period last?

Most IPO lockup periods run 180 days from the IPO date, set by contract in the underwriting agreement between the company and its investment banks. Some companies negotiate shorter lockups (90 days) or staggered lockups that release different groups of insiders at different times. The lockup is not a securities law requirement—it is a contractual agreement between the company and its underwriters, and the terms vary by deal.

Can I sell my shares immediately when the lockup expires?

For most employees, yes—subject to the company's insider trading policy and any open trading window requirements. But for officers, directors, and 10%+ shareholders, Section 16 of the Securities Exchange Act limits sales that could result in short-swing profits: if you bought company shares within 6 months before any sale, the gain from the matched purchase and sale must be returned to the company. A 10b5-1 plan, established in advance while you are not in possession of material non-public information, is the primary mechanism for scheduled sales.

How are my IPO shares taxed when I sell them?

The tax treatment depends on how you received the shares. RSU shares vested at or around the IPO: ordinary income was recognized at vest (shown on your W-2); the vested shares have a tax basis equal to the FMV on the vest date; appreciation from vest to sale is short-term capital gain (taxed at ordinary rates) if sold within 12 months of vest, or long-term capital gain (0%/15%/20% under 2026 brackets) if sold after 12 months. ISO shares exercised pre-IPO: no ordinary income at exercise, but the spread is an AMT preference item; long-term capital gains apply if you hold at least 1 year from exercise date AND 2 years from grant date. NSO shares exercised pre-IPO: the spread at exercise was ordinary income; additional appreciation from exercise to sale is capital gain, long-term if shares were held more than 1 year after exercise.

What is a 10b5-1 plan and how does it work after an IPO?

A 10b5-1 plan is a pre-set trading arrangement that allows corporate insiders to sell shares on a scheduled basis, even during blackout periods, because the selling decisions are made in advance when the insider is not aware of material non-public information. Under the 2023 SEC amendments to Rule 10b5-1 (SEC Release No. 33-11138), officers and directors must observe a cooling-off period before the first trade: the later of (a) 90 days after the plan is adopted or (b) the next quarterly earnings release, up to a maximum of 120 days. Non-officer employees face a 30-day cooling-off period. Only one active plan is permitted at a time (with a narrow exception for single-trade plans). The plan must be adopted in writing and include certifications that you are not aware of MNPI at the time of adoption.

Will my IPO windfall trigger higher Medicare premiums?

Likely yes, two years later. Medicare Part B and Part D premiums are set using your income from two years prior under the IRMAA rules. A large taxable event in 2026 (RSU vest income, stock sales above the long-term capital gain threshold) will increase your 2028 Medicare premiums. The 2026 IRMAA first tier begins at $109,000 for single filers and $218,000 for married filing jointly. The highest tier adds $487/month per person to Part B alone. You cannot appeal IRMAA caused by an IPO or lockup sale—the Form SSA-44 appeal only applies to specific life-change events like marriage, divorce, or job loss.

Does California tax my stock income if I moved out of state after the IPO?

California allocates equity compensation income based on where you worked during the vesting period, not where you live when you sell. If your RSUs vested while you worked in California—even if you have since relocated to Texas or Florida—the California Franchise Tax Board will assert that the California-apportioned income is taxable there. The state-source rules for RSUs are based on the ratio of California workdays during the period from grant to vest. For large RSU grants with a multi-year vesting schedule, some of this income may be apportioned to California even if you moved states before vesting was complete.

When should I hire a financial advisor after an IPO?

Before the lockup expires—not after. The most impactful decisions (establishing a 10b5-1 plan, calculating the withholding gap, modeling IRMAA exposure, choosing between LTCG hold vs. immediate sale, positioning charitable giving in a high-income year) all require time to implement. A 10b5-1 plan for an officer requires at least 90–120 days before the first trade can execute. That means if your lockup expires in 6 months, the window for setting up the plan correctly may already be closing. An advisor who specializes in equity compensation can model the after-tax outcome of different selling schedules and coordinate with your CPA before any shares change hands.

IPO Lockup Expiration: Tax Planning, 10b5-1 Plans, and Diversification

When an IPO lockup expires, most employees can finally sell — but officers and directors face Section 16 short-swing profit rules, 90–120 day 10b5-1 cooling-off requirements, and insider trading policies that often make day-181 sales impossible. And for everyone, selling all your shares at lockup expiry is usually the wrong tax move. Here is what the rules actually say in 2026.

How an IPO lockup works

An IPO lockup period is a contractual restriction—not a securities law requirement—that prevents company employees, founders, and pre-IPO investors from selling shares for a set period after the IPO. Most lockups run 180 days from the IPO date, though some deals use 90-day lockups or staggered release schedules that unlock different groups at different times.

The lockup is negotiated between the company and its underwriting banks. Violating the lockup is a contract breach that can expose the employee and the company to significant liability. After the lockup expires, stock trading is governed by the company's insider trading policy, any applicable securities law restrictions (Section 16, Rule 144), and the individual's equity plan documentation.

Key fact: Lockup expiry does not mean "free to sell." For most officers and directors, the earliest they can execute a 10b5-1 plan trade is 90–120 days after the plan is established—which means planning must begin well before the lockup ends.

How your shares are taxed at and after the lockup

The tax treatment of your shares depends entirely on how you received them and how long you have held them since the taxable event.

Equity Type	When Ordinary Income Was Recognized	Capital Gain Holding Period	Key Planning Issue
RSUs (vested at or near IPO)	At vest date — FMV on vest date is ordinary income on W-2. Employer withholds at the flat 22% supplemental rate.¹	Shares held >12 months from vest date qualify for long-term capital gains (LTCG). Sold within 12 months = short-term, taxed as ordinary income.	Most IPO cliff vests trigger a large W-2 event. The 22% withholding rarely covers actual tax for bracket earners — the gap to 37% federal plus state can exceed $100,000 on a $1M vest.
ISO shares (exercised pre-IPO)	None at exercise — but the spread (FMV at exercise minus exercise price) is an AMT preference item that increases alternative minimum taxable income in the exercise year.²	Long-term capital gains require holding at least 1 year from exercise date AND 2 years from grant date. If either condition is missed, a disqualifying disposition converts gain to ordinary income.	Employees who exercised ISOs early (83(b) election at grant or shortly after) and held through IPO often have substantial AMT credit carryforwards. Tax modeling is required before any decision to sell.
NSO shares (exercised pre-IPO)	At exercise — the spread (FMV at exercise minus exercise price) was ordinary income reported on W-2 in the year of exercise.¹ Shares have a tax basis equal to FMV at exercise.	Shares held >12 months from exercise date qualify for LTCG on appreciation above the basis. Pre-IPO exercise often means the long-term threshold is already met by lockup expiry.	Employees who exercised NSOs in the years before IPO may owe no additional ordinary income on lockup expiry — their gain is purely LTCG on appreciation above their exercise-date basis.
Founder shares (common stock)	Typically none — founders acquire shares at nominal cost. Gain from the IPO price up to sale price is capital gain (long-term if held >1 year from purchase).³	Most founders have held shares for years before IPO — long-term treatment is standard. QSBS exclusion (§1202) may apply if shares were original-issue qualified small business stock held 5+ years.⁴	Founders in community property states may need to account for a spouse's ownership interest in the shares. Concentrated single-stock risk is typically largest for founders.

The LTCG hold decision: wait 12 months or sell at lockup?

For employees whose RSUs vested at the IPO, there is often a direct tension between locking in gains now (selling shortly after lockup expiry, at short-term rates) or waiting until 12 months from the vest date to qualify for long-term capital gains treatment.

The 2026 LTCG rates are 0%, 15%, and 20% depending on income — versus ordinary income rates of up to 37% federal plus state.⁵ The Net Investment Income Tax (NIIT) of 3.8% applies to capital gains above $200,000 for single filers and $250,000 for joint filers, bringing the effective federal top rate to 23.8%.

2026 LTCG Rate	Single Filer Taxable Income	MFJ Taxable Income
0%	Up to $49,450	Up to $98,900
15%	$49,451 – $545,500	$98,901 – $613,700
20%	Above $545,500	Above $613,700

Whether waiting is worth it depends on the stock price risk during the gap period. A 15-point tax rate difference (37% short-term vs. 22% combined LTCG+NIIT) represents meaningful after-tax dollars on a large position, but concentrating a large position in a single newly-public stock for 6+ additional months is also a meaningful financial risk. The decision requires modeling, not intuition.

Section 16 restrictions for officers and directors

If you are an officer, director, or 10%+ shareholder of the company, Section 16(b) of the Securities Exchange Act imposes a short-swing profit rule: any profit from a purchase and sale (or sale and purchase) of the company's equity within a 6-month window must be returned to the company. This is an absolute liability rule — intent is irrelevant.⁶

For employees who received RSUs and did not exercise options pre-IPO, the deemed "purchase" occurs at vest. This can create unexpected short-swing liability if shares are sold within 6 months of a vest event. The rules are technical and depend on the type of equity transaction — consult securities counsel before any sale if you hold a reporting position.

Section 16 insiders must also report transactions on Form 4 within two business days of any change in ownership.

10b5-1 plans: the mechanism for systematic selling

A 10b5-1 plan allows you to pre-commit to a selling schedule — quantities, prices, and dates — at a time when you are not aware of material non-public information (MNPI). Sales that execute under the plan provide an affirmative defense against insider trading liability, even if the company is in a blackout period at the time of the trade.

The SEC significantly amended Rule 10b5-1 in December 2022 (effective February 27, 2023).⁷ The key rules for 2026:

Officers and directors: The cooling-off period between plan adoption and the first permitted trade is the later of (a) 90 days after the plan is adopted or (b) the next quarterly earnings release after adoption, subject to a maximum of 120 days.
All other employees: 30-day cooling-off period between plan adoption and the first trade.
One plan at a time: Only one active 10b5-1 plan is allowed per person (with a narrow exception for a single-trade plan that may coexist).
Certification requirement: The plan must include written certifications that you are not aware of MNPI and that the plan is being adopted in good faith.
Plan modifications: Modifying a plan restarts the cooling-off clock — meaning a plan cannot be adjusted in response to market movements.

Practical timing: If a company IPO'd in January 2026 with a 180-day lockup (expiring July 2026), an officer who wants to begin selling on the day after lockup must have established their 10b5-1 plan by approximately late March or early April — while being outside any blackout window and not in possession of MNPI. For most companies, this means the plan must be in place within the first few weeks after IPO before quarterly earnings season begins.

Diversification strategies beyond open-market selling

Selling systematically into the open market via a 10b5-1 plan is the most straightforward diversification method, but it is not the only one. For very large positions or employees with MNPI restrictions that limit selling windows, other approaches exist:

Donor-Advised Fund (DAF) with appreciated stock. If your shares have appreciated since vesting, contributing them in-kind to a DAF before selling eliminates the capital gains tax on the contributed shares and generates a charitable deduction at fair market value (subject to the 30% AGI limit for appreciated property). In a high-income IPO year, a large DAF contribution can reduce taxable income significantly while funding years of charitable giving.³

Zero-premium equity collars. A collar combines a protective put (floor on the downside) with a covered call (cap on the upside) at roughly equal premium, creating a price range with limited risk. Collars are used to hedge concentrated stock risk without an immediate sale. Note: IRC §1259 treats a collar as a constructive sale if it effectively eliminates all risk of loss and opportunity for gain — a narrow range collar can trigger taxable gain in the year the collar is entered.⁶

Exchange funds. An exchange fund is a pooled investment structure where multiple investors contribute concentrated positions and receive diversified fund interests in return. Contribution is generally tax-free under IRC §721 partnership exchange rules. However, exchange funds have minimum contribution thresholds (typically $1M+), a 7-year lock-up requirement, and eligibility restrictions — the fund must hold at least 20% of its value in illiquid assets to qualify. Not available at every brokerage and requires legal review.

Direct indexing. Sell the concentrated position and reinvest in a direct indexing account that holds hundreds of individual securities (rather than an index fund) to allow tax-loss harvesting against the new holding. This does not reduce the capital gain on the original sale but can generate ongoing losses to offset future gains in the portfolio.

IRMAA: the two-year Medicare premium lookback

Medicare Part B and Part D premiums are adjusted based on your modified adjusted gross income (MAGI) from two years prior. A large taxable event in 2026 — RSU vest income, short-term gains from stock sales, or large long-term gains — will increase your 2028 Medicare premiums under the Income Related Monthly Adjustment Amount (IRMAA) rules.

The 2026 IRMAA first tier begins at $109,000 for single filers and $218,000 for married filing jointly. The highest tier (above $500,000 single) adds $487/month per person to Part B premiums alone — $5,844/year per person on top of base premiums.⁸

Employees in their 50s or 60s approaching Medicare eligibility should model IRMAA exposure before deciding whether to concentrate gains in a single tax year. Spreading sales across two tax years (for example, selling in late December and early January) can sometimes keep income below a tier boundary and save thousands in annual premiums.

California's vesting-source rule for equity income

California allocates RSU and stock option income based on where you worked during the vesting period, not where you live when the shares are sold or when the income is recognized. If your RSUs vested while you were a California resident and employee, the Franchise Tax Board (FTB) will assert a portion of that income is California-source income — regardless of whether you have since moved to Texas, Florida, or another zero-income-tax state.

For a multi-year RSU vesting schedule (e.g., 4-year vesting with a 1-year cliff), the California-source fraction is generally the proportion of workdays in California during the grant-to-vest period. The FTB actively audits high-income equity earners who relocate before a liquidity event. Employees who moved states during a multi-year vesting period should model their California source-income exposure before assuming the new state's rates apply.

First-year checklist for IPO lockup planning

Model the withholding gap. Calculate the difference between your employer's 22% supplemental withholding on RSU vests and your actual marginal rate (up to 37% federal plus state). For a $2M vest, this gap can exceed $300,000 owed on your tax return.
Set aside a tax reserve before any proceeds are spent. Do not spend the after-withholding deposit — a tax reserve of the withholding gap should be held in a separate account until Q4 of the vest year.
Establish the 10b5-1 plan early. If you are an officer or director, the 90–120 day cooling-off period means the plan must be adopted within weeks of the IPO — not at lockup expiry. Work with securities counsel and your financial advisor before the post-IPO blackout window opens.
Decide on the LTCG hold. If your RSUs vested at or near the IPO, calculate the after-tax difference between selling at short-term rates now versus waiting 12 months for LTCG treatment. Compare that tax savings against the single-stock risk of holding the position longer.
Model IRMAA exposure. If you are within 10 years of Medicare eligibility, calculate which income tier your IPO-year MAGI will land in and whether spreading sales across tax years changes the 2-year lookback outcome.
Engage a fee-only advisor before the first sale. The most valuable planning — 10b5-1 design, tax reserve, IRMAA management, charitable strategy, and the LTCG hold decision — happens before shares are sold, not after.

Engage an advisor before the lockup window closes

The planning window for an IPO is compressed in a way that most other sudden wealth events are not. A 10b5-1 plan requires a 90–120 day setup period. The LTCG hold decision must be made within months of the vest date. Charitable contributions of appreciated stock must be made before year-end to affect the current year's taxes. These deadlines do not wait for a decision to feel urgent.

A fee-only advisor who specializes in equity compensation can model the after-tax outcome of different selling schedules, coordinate with your CPA and securities attorney, and help you decide what can safely wait — before the pressure of an expiring lockup turns a planning decision into a reaction.

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Sources

IRS Publication 525, "Taxable and Nontaxable Income" — treatment of RSU and NSO income as ordinary compensation: irs.gov/publications/p525
IRC §422 — incentive stock option qualification requirements, including the 1-year/2-year holding period for LTCG treatment and the AMT preference item at exercise: law.cornell.edu/uscode/text/26/422
IRC §170 — charitable deduction rules including the 30% AGI limit on contributions of long-term capital gain property to donor-advised funds: law.cornell.edu/uscode/text/26/170
IRC §1202 — QSBS exclusion, as amended by OBBBA (2025) to $15M cap with tiered 50/75/100% exclusion at 3/4/5 years: law.cornell.edu/uscode/text/26/1202
IRS Rev. Proc. 2025-32 — 2026 tax bracket thresholds and long-term capital gains rates (0%/$49,450/$98,900; 15% to $545,500/$613,700; 20% above): irs.gov/pub/irs-drop/rp-25-32.pdf
Securities Exchange Act §16(b) — short-swing profit recovery rule for officers, directors, and 10%+ shareholders; IRC §1259 — constructive sale treatment for collar positions: law.cornell.edu/uscode/text/15/78p
SEC Release No. 33-11138 (December 14, 2022, effective February 27, 2023) — Rule 10b5-1 amendments: cooling-off periods, single-plan limit, certification requirements: sec.gov/rules/final/2022/33-11138.pdf
CMS 2026 Medicare Part B & Part D IRMAA fact sheet — income thresholds and surcharge amounts (first tier $109,000/$218,000; top Part B premium $689.90/month): cms.gov/newsroom/fact-sheets

Tax values verified against 2026 rules: LTCG brackets per Rev. Proc. 2025-32; AMT exemption per OBBBA and Rev. Proc. 2025-32 ($90,100/$140,200 single/MFJ, phaseout $500K/$1M); 10b5-1 cooling-off periods per SEC Release 33-11138. Values current as of October 2026.