10b5-1 Plans: Selling Company Stock on a Schedule You Set in Advance

Key takeaways

A 10b5-1 plan is a written selling schedule, adopted in an open window, that runs regardless of later events and provides an affirmative defense against insider trading claims.
Since 2023, officers and directors wait 90 to 120 days before the first trade, and the plan must be certified and disclosed.
The plan is the mechanism, not the strategy: how much to sell, which lots, and over what period come from the household's diversification target.
Overlapping and single-trade plans are restricted, so design the plan once for the full period rather than patching it.

If you're an executive sitting on a big block of company stock, you already know the problem. The windows when you're allowed to sell are short, and inside every one of them you might know something that makes selling dangerous. A Rule 10b5-1 plan gets around this by taking the decision out of your hands at the moment it matters. You adopt the plan in a clean window, it spells out what gets sold and when, and then the trades run on schedule whether or not you learn anything later. For a household trying to work down a concentrated position, it's the tool that makes the diversification plan possible at all.

What the rule actually gives you

Rule 10b5-1 under the Securities Exchange Act provides an affirmative defense to insider trading liability for trades made under a binding contract, instruction, or written plan that was adopted when you weren't aware of material nonpublic information. The plan has to specify the amounts, prices, and dates, or give a formula for figuring them out, or hand the trading decisions to someone else who has no inside information. Once it's adopted, you can't influence the trades.

Your company's insider trading policy will almost certainly require the plan to be pre-cleared by the general counsel and adopted only in an open window. Most public companies have a standard template with their preferred broker.

The 2023 amendments

The SEC tightened the rule effective February 2023, after years of research showing that some plans were being adopted and cancelled a little too conveniently.

Cooling-off period. For officers and directors, no trades until the later of 90 days after adoption or two business days after the next quarterly earnings release, capped at 120 days. For other insiders, 30 days.
Certification. Officers and directors must certify in the plan that they're unaware of material nonpublic information and are adopting the plan in good faith.
No overlapping plans. You generally can't have two plans in effect for open-market trades at the same time. There are narrow exceptions for sell-to-cover plans on equity awards.
One single-trade plan per year. A plan designed to execute a single trade is limited to one every twelve months.
Good faith throughout. You have to act in good faith with respect to the plan the whole time, not just at adoption. Modifying a plan counts as terminating it and adopting a new one, with a fresh cooling-off period.
Disclosure. Companies disclose the adoption and termination of officer and director plans in quarterly filings, and Form 4 filings flag trades made under a plan.

So the practical upshot: design the plan carefully once, for a year or more, rather than tinkering with it as things change.

Designing the plan

The plan is the mechanism. The design questions come from your household's finances, not from the broker's template.

How much to sell. Your investment policy sets a maximum for any single stock, and the plan sells down to it. For most executives that ceiling is far below what they hold, and the plan runs for one to three years to get there.

Which shares. Lots differ in basis and holding period. RSU shares delivered at various prices, ISO shares that will or won't have met their qualifying periods, ESPP shares, founder shares that might be QSBS. The plan can specify lot selection so high-basis and long-term lots go first and QSBS lots wait for their dates. This is where a plan drafted from the broker's template and a plan drafted with the tax projection in hand diverge the most.

Schedule versus price. A pure schedule (sell X shares on the first trading day of each month) is the simplest and gives the strongest defense. Price-based instructions (sell Y shares if the stock exceeds Z) add flexibility, but they can leave you concentrated if the price never shows up. A combination is common: a base monthly sale plus extra tranches at price targets. The base schedule should be enough to hit the target on its own. Treat the price tranches as gravy.

Coordination with awards. New RSU vestings and option exercises during the plan period keep adding shares. The plan can include instructions to sell shares as they vest (sell-to-cover and beyond), which stops the position from regrowing behind your back.

Taxes. The sale schedule flows into the tax projection: estimated payments, the year's bracket, the NIIT, and, for a large sale, IRMAA two years later. Spreading sales across two tax years instead of one is often worth a few months of delay.

Living with it

Once the plan is running, your job is to leave it alone. The stock will go up after some sales and down before others. That's what a schedule does, and it's the price of the defense. Terminating a plan because the stock dropped is permitted, but it resets the cooling-off period and, under the good-faith requirement, invites scrutiny if it happens more than once. The households we've seen do best with these plans are the ones who set the target beforehand and treat the plan as carrying out a decision they already made.

Who needs one

Section 16 officers and directors, almost always. Employees below that level who are regularly in possession of material information, often. Employees with no access to inside information don't need the defense, but they still face blackout windows under company policy, and a plan may still be the practical way to sell through them.

Where we come in

For executive clients, we set the diversification target, work out the lot-level sale order with the tax projection, and draft the plan's economic terms with the client's counsel and the broker, in the open window, with the cooling-off period built into the timeline. The plan becomes part of the equity compensation plan, and the sales feed the household's portfolio and cash flow on schedule. The largest risk on the balance sheet turns into a process. That's the whole job.

Frequently asked questions

Can I have a 10b5-1 plan for buying stock?

Yes, the rule covers purchases too. In practice nearly all plans are sales.

What happens if the company is acquired during the plan?

The plan typically terminates automatically on a change of control, and the deal terms govern the shares. Many plan templates address this explicitly.

Do I need a plan for RSU sell-to-cover?

Plans that only sell shares to cover taxes on vesting awards are permitted alongside another plan, and they're usually set up through the company's equity administrator.

Is a 10b5-1 plan public?

Its adoption and termination are disclosed in the company's quarterly filings for officers and directors, and trades show up on Form 4. The full terms aren't filed.

Joseph G. Valerio, CFP®, EAFounder and Lead Advisor at Valerio Wealth Management, a fee-only, fiduciary virtual family office in Miami, Florida. One advisor, credentialed in both financial planning and federal tax. About Joseph

This article is general education, not individualized advice, and it is not tax, legal, or accounting advice. Figures reflect federal law for the year stated and can change. Valerio Wealth Management does not prepare or file tax returns. Speak with a qualified professional about your own situation before acting.