Leaving Textron? What Happens To Your Stock Options (Retirement, Resignation, or Termination)

You just gave notice (or it was given to you). HR hands you a packet with a deadline and your heart rate spikes. Among all the things that just got added to your plate you wonder: what happens to my stock options?

Some options expire fast, some keep vesting (if you qualify), and taxes can blindside you if you're guessing. Let's remove the guesswork and walk through what Textron's documents actually say, and how IRS rules interact with them. Keep in mind your specific award agreements always control what happens to your stock options. (SEC filing)

A Brief Foundation

There are three clocks govern what happens to your stock options:

1. Vesting schedule. This is when the options become yours to exercise

2. Post-termination exercise period. This is your window to act after leaving (varies by how you leave).

3. Original 10-year option term. This is the absolute expiration date from when they were granted

The 10-year term is especially important. It is a hard stop that overrides everything else. A retiree might get a 48-month exercise window, but if the original grant expires in six months you would only have six months to exercise your options before they become worthless (SEC filing).

How these dates interact: Your post-termination exercise window can never extend past the original 10-year expiration. The earlier date wins.

For example, lets say you received options in January 2020, so the 10 year option term means they expire January 2030. You retire in July 2029 as retirement-eligible. Normally you'd get 48 months to exercise (until July 2033). But the options expire in January 2030 regardless. So you only have 6 months, not 48 months. The 10-year clock has been ticking since the grant date, not since you left.

ISO vs. NQSO: These have the same economic upside but the taxes can be very different depending on how you time their exercise. ISOs can trigger AMT (alternative minimum tax, which is uncommon but can be significant) at exercise. NQSOs trigger ordinary income tax at exercise. For ISOs to get favorable tax treatment, you need to hold more than 1 year after exercise AND more than 2 years from grant. (IRS Publication 525)

"Retirement eligible" really matters. It opens generous windows. "For cause" termination can zero out everything immediately. (SEC filing)

Important note: Different grant years can have different terms (36 vs. 48-month windows, for example). Be sure to look at each award agreement, don't assume they're all the same.

What Actually Happens When You Leave

So, what actually happens when you leave? It depends on how you and/or why you leave. Here are common treatments found in the Textron agreements. Remember always confirm against your specific grant documents.

1) Retirement (You Meet Textron's Definition)

If you're at this point in your career, congratulations! Your hard work has paid off.

Textron's retirement eligibility: This is defined as age 55 with 10 years of service, or age 60, or 20 years of service. Most recent awards explicitly define it as 55/10. (SEC filing)

Unvested options: Retirement-eligible executives typically get continued vesting of unvested options. Non-executive employees usually have shorter windows where some options continue to vest. Check with HR well before any retirement plans to confirm your exercise window. (Textron Proxy 2025)

Vested options: These usually have an extended exercise window, typically up to 48 months post-termination, but never beyond the original 10-year option term. (SEC filing)

The ISO tax trap: This is critical. If you exercise an ISO more than 3 months after leaving, you generally lose ISO status and it's treated like an NQSO for tax purposes. This is true even if your company's exercise window is longer. If you become disabled, the ISO window usually extends to 12 months. (Foley & Lardner analysis)

2) Voluntary Resignation (Not Retirement-Eligible)

Unvested options: These are forfeited at termination. Textron draws a hard line here unless you're retirement-eligible. Be aware of upcoming vesting dates before you give notice.

Vested options: These have a short post-termination exercise period, commonly around 90 days. This aligns with the ISO 3-month rule. (Kitces analysis)

ISO tax: Same 3-month rule applies. Exercise within 3 months post-employment or lose ISO treatment.

3) Involuntary Termination Without Cause (Layoff/RIF)

3) Involuntary Termination (Lay-Off)

First, if you're in this situation, I'm sorry you're going through this. The stock options are meaningless apart from the person who owns them.

If you're involuntarily terminated but retirement eligible, the retirement rules typically apply. The rules below usually apply if you're not retirement eligible.

Unvested: Usually forfeited unless your separation agreement says otherwise.

Vested: Typically, you have a 90-day exercise window. Some severance arrangements extend this. Those for executive severance examples in Textron proxies show options continuing to vest with a 48-month exercise window. (Textron Proxy 2025)

4) Termination For Cause

Both vested and unvested: Immediately forfeited. No window. No appeal. Textron's option agreements are clear on this point. (SEC filing)

5) Disability & Death (Often Overlooked)

Grants after 2014: All unexercised shares (vested or unvested) become exercisable with a window up to 60 months (5 years) post-termination, but never beyond the original expiration. Some older grants differ. (SEC filing)

6) Change in Control

If a change in control occurs, Textron can assume, replace, cash-out options, or accelerate vesting. If your award isn't assumed or replaced, it often becomes immediately exercisable before the transaction.

If you're terminated without cause or resign for Good Reason within two years after a change in control, unexercised options typically become fully exercisable through their normal expiration (double-trigger protection). (SEC filing)

The Taxes (What You Actually Pay)

NQSO: When you exercise them, these are taxed on the spread as ordinary income (plus FICA/Medicare). Subsequent gains or losses are capital gainsor losses. (IRS Publication 5992)

Example: You have 1,000 NQSOs granted at $20 strike price. Current value is $50. You exercise all 1,000. The bargain element (the spread between current value and strike price) is $30 per share = $30,000 total. That $30,000 shows on your W-2 as ordinary income, subject to FICA and Medicare tax.

ISO: They have no ordinary income tax when you exercise, but AMT may apply on the bargain element. For long-term capital gain treatment, you must hold positions longer than 1 year after exercise AND longer than 2 years from grant. Otherwise, a disqualifying disposition causes ordinary income on part of the gain. (IRS Publication 525)

Using the same example: 1,000 ISOs, $20 strike price, granted over 2 years ago, exercised at $50. The bargain element is $30 per share.

Qualifying disposition (met both holding periods): Your basis was $20 per share. Sell at $70 = $50,000 long-term capital gain.

Disqualifying disposition (didn't meet holding periods): You owe ordinary income tax on the lesser of: (1) Fair market value at exercise minus strike price, or (2) Sale price minus strike price. This income generally isn't subject to FICA/Medicare tax. The gain you paid tax on is added to your basis for capital gains calculation.

The 3-Month Rule: To keep ISO status after leaving, be sure to exercise within 3 months (12 months if disabled). Beyond that, tax treatment is like an NQSO even if the plan gives you more time to exercise. This is the single most costly misunderstanding. (Foley & Lardner analysis)

Where People Lose Money

10-year expiration beats everything. A retiree's 48-month window won't extend beyond the original 10-year term. If Grant A expires in six months, it doesn't matter that you just retired. (SEC filing)

Multiple grants, multiple clocks. Each grant year can have different vesting, windows, and change-in-control terms.

Blackouts still matter. If you are considered an insider, trading windows can limit sale timing. Consider a 10b5-1 plan. This is a pre-arranged trading plan that lets you sell stock on predetermined dates, even during blackout periods. You set it up in advance when you don't have inside information, then trades execute automatically according to your schedule.

Your Action Plan

1. Pull every document: Each award agreement (by year), plan document, severance memo

2. Map the dates for each grant: Grant date, vesting tranches, original expiration, post-termination exercise period by scenario

3. Classify grants: ISO vs. NQSO; mark which are in-the-money

4. Sequence exercises: What expires first? Any grant nearing the 10-year term? Where's AMT exposure highest?

5. Pick the method: Cash exercise, same-day sale, sell-to-cover, or net exercise—know the share count and tax impact of each

6. Tax planning: Model W-2 income (NQSOs) vs. AMT (ISOs); plan for estimates/withholding

7. Liquidity plan: If not selling immediately, how will you fund the exercise and taxes?

8. Trading policy: Confirm blackout dates and whether you need a 10b5-1 before you leave

9. Estate planning reality check: Death/disability rules can be more favorable but time-bound; your spouse needs to know where documents are

10. Calendar it: 30/60/75-day reminders post-exit and 6 months before each 10-year grant expiration

Why This Matters in Wichita

Textron Aviation is one of Wichita's largest employers. Many professionals accumulate layered grants across multiple years with slightly different terms (older 36-month retiree windows vs. newer 48-month terms). If you change roles at Textron or leave (for any reason) and don't pay attention to those differences, they can turn a great benefit into a very expensive one. (SEC filing)

Quick Reference: Exit Scenario Matrix

(Confirm against your specific grant documents)

Scenario	Unvested	Vested	Typical Window	ISO Status
Retirement-eligible	Often continue to vest	Exercisable post-retirement	Often 36-48 months, never beyond 10-year term	Keep ISO only if exercised ≤ 3 months; later = NQSO tax
Resignation (not retire-eligible)	Forfeited	Exercisable	Often ~90 days	Must exercise ≤ 3 months to keep ISO
Involuntary, not for cause	Forfeited (unless severance says otherwise)	Exercisable	Often ~90 days (longer if negotiated)	Same 3-month ISO rule
For cause	Forfeited	Forfeited	None	N/A
Disability/Death	2014+ grants: typically accelerated/exercisable	Exercisable	Up to 60 months (5 years)	Disability may allow 12-month ISO window

What To Do Next

Work through the action through the action plan above.

Take care of your partner. If you're married, make sure your spouse knows where the equity documents are and understands the timelines, especially for death/disability scenarios.

Seek professional advice. If all of this is overwhelming or downright confusing, you are not alone. I help people like you find their way through these bewildering situations everyday. If you would like the help of an experienced financial professional, reach out today!

Schedule A Call!

Compliance note: This is education, not tax or legal advice. Your award agreement controls. We'll confirm every detail against your latest plan documents before you act. (SEC filing)