ISOs, AMT, and a 22% Roth window before the IPO

The situation

Yuki is 31, a senior engineer at a Series C fintech in San Francisco. Base salary $190K. The reason he's at this company isn't the salary - it's the equity. He has 60,000 ISOs vested, an exercise price of $2.40 a share, and a recent 409A valuation around $19. The company is talking about a 2027 IPO. On paper, he's looking at a multi-million-dollar position. On his last tax return, she made $182K.

Yuki is sharp. he reads Hacker News tax threads. He knows the words "AMT" and "QSBS." He has a gut sense that the next 18 months matter - but every conversation she's had with a CPA ends with "we'll look at it when you exercise." Her friends are doing wildly different things, all confidently.

The gap we found

A founder or early employee with a low W-2 year, real ISO leverage, and a credible IPO timeline is in one of the rarest tax windows in the entire US system, and most CPAs won't engage with it because it lives in projection, not in last year's 1040. The cost of waiting until exercise to plan isn't a missed deduction. It's a permanently larger AMT bill, locked-in short-term capital gains, and zero Roth conversion ground covered.

We modeled three exercise scenarios for Yuki, early exercise of a portion now, exercise in tranches across two tax years, and a single bulk exercise pre-IPO, and showed him the AMT math for each.

What we did

He had been paying attention to the wrong number. The right one was the AMT crossover point: how many shares he could exercise this year before triggering AMT, and what that meant for his five-year holding clock under the QSBS exclusion.

In the same year, we ran a $48K Roth conversion of his old 401(k) rollover IRA. At his current bracket the tax cost was modest. Once that account compounds for thirty years, every dollar of growth comes out tax-free. We also turned on the mega-backdoor Roth contribution his employer's 401(k) plan supports but he hadn't set up - another $34K of after-tax-to-Roth space he was leaving on the table every year.

We set up a Direct Indexed taxable account with the cash from his sign-on bonus, so the tax-loss harvesting machinery is running before any IPO liquidity arrives. And we got the foundation tightened up: a quarterly estimated tax cadence (Alphanso's AI agents track her payroll and the new exercise activity in the background and tell him when to send a check), a beneficiary review across every account, and an updated will.

The result

• ~$42,000 in projected AMT savings from staged ISO exercise vs. a single pre-IPO bulk exercise
• $48K Roth conversion completed at a 22% bracket - decades of tax-free growth
• $34K/year of new mega-backdoor Roth space activated
• A QSBS-aware exercise plan that protects up to $10M of gain at IPO

   PROJECTED AMT SAVINGS
   

$42,000

Staged vs. bulk exercise

   ROTH SPACE ACTIVATED
   

$82,000+

Conversion + mega-backdoor / yr

   QSBS GAIN PROTECTED
   

Up to $10M

Federal exclusion at IPO

   EFFECTIVE TAX RATE
   

32% → 19%

Exercise year, blended federal

Why this worked

Most early employees lose more value to the timing of their equity decisions than to the strategies their friends are arguing about online. The win wasn't a clever workaround. It was running the AMT model before the exercise, not after, and using the low-income year for what it was actually for. Alphanso's flat fee made it worth doing the projection work; the AI agents kept the quarterly estimates honest in the background.

If you're sitting on ISOs you haven't exercised and a CPA who only wants to talk to you once a year, request a callback before the next 409A.

This case study is a composite illustration based on real Alphanso client scenarios. Names and identifying details have been changed for privacy. Results are not guaranteed and will vary based on individual circumstances. All investing involves risk, including the possible loss of principal. Alphanso LLC is a registered investment adviser.