What is a 10b5-1 plan, and how does it let me sell company stock safely?
Last reviewed: July 2026
A 10b5-1 plan is a written, pre-set stock trading plan that lets corporate insiders and employees sell company shares on an automatic schedule, even during periods when they hold material non-public information. Adopting the plan at a moment when you do not hold MNPI gives you an affirmative defense against insider trading charges when the trades execute later. For executives, founders, and rank-and-file employees with a meaningful equity position, a properly built 10b5-1 plan is the cleanest way to turn paper wealth into cash without spending every quarter wondering whether the next trade will trigger an SEC inquiry.
On This Page
- Key Takeaways
- What is a 10b5-1 plan, and why does the SEC care so much about it?
- Who actually needs a 10b5-1 plan, and who is overcomplicating this?
- What did the SEC change about 10b5-1 plans in the 2022 amendments?
- How do you actually set up a 10b5-1 plan without tripping over the fine print?
- When does a 10b5-1 plan help, and when does it just add paperwork?
- Related topics worth reading
- Frequently Asked Questions
- Disclosures
Key Takeaways
- A 10b5-1 plan is the SEC-sanctioned route for insiders to sell company stock without an insider trading lawsuit hanging over the transaction.
- The amended rule has been in effect since February 27, 2023, with a 90-day cooling-off period for directors and a 30-day period for others.
- Only one single-trade plan is allowed in any rolling 12-month period, and overlapping plans for directors and officers are restricted.
- The plan must be adopted in good faith when you do not hold MNPI, locking in price, quantity, and dates before any trade runs.
About the Author: Jeff Judge, CFP®, AEP®, ChFC®, CLU® is Managing Partner of Chesapeake Financial Planners in Forest Hill, Maryland. He has been helping families and business owners in Harford County and the Baltimore metro area navigate equity compensation and concentrated stock decisions since earning his CFP® certification in 2013, by using Chesapeake Financial Planners’ signature process, the R.U.D.D.E.R. method™. Jeff has watched smart, well-paid executives talk themselves into trading windows that looked safe at the time and turned into an SEC inquiry six months later, which is why a written 10b5-1 plan is usually the first thing he asks about when a client's pay stub includes RSUs or stock options.
What is a 10b5-1 plan, and why does the SEC care so much about it?
A 10b5-1 plan, sometimes called an executive stock selling plan, is a written agreement, usually with a broker, that pre-commits an insider to buy or sell a specific number of company shares on specific dates or under specific price triggers. The agreement is governed by SEC Rule 10b5-1, which the SEC adopted in August 2000 and substantially amended in December 2022 under new SEC Rule 10b5-1(c)(1).
The reason the SEC cares is straightforward. Federal securities law prohibits trading on material non-public information. The minute you know something a public shareholder does not, like a missed quarter, a pending acquisition, or a regulatory action coming next week, you cannot legally sell stock. A 10b5-1 plan flips that problem on its head. If you set the trading instructions in advance, at a time when you do not hold MNPI, and you do not modify them when MNPI later shows up, the trades that follow are not informed by what you know.
That is the affirmative defense Rule 10b5-1 creates. Without it, every insider sale would be subject to second-guessing by enforcement staff and shareholder plaintiffs, and most executives would never sell at all. FINRA treats violations of these prohibitions as one of the most serious categories of securities misconduct, and the enforcement pattern over the last decade has been steady, not episodic.
Jeff Judge often points out that this is one of the few places in tax and securities law where the rule actually rewards planning. The whole structure tells clients to decide in calm weather and execute in any weather, and that is the kind of rule he wants people leaning on rather than fighting against.
Who actually needs a 10b5-1 plan, and who is overcomplicating this?
The plan is built for anyone who could be accused of trading on inside information. In practice, that means three groups: Section 16 officers and directors of public companies, employees at any level who have access to MNPI as part of their job, and anyone subject to the company's insider trading policy, which typically sweeps in a wide group around earnings, mergers and acquisitions, and product launches.
The R.U.D.D.E.R. Method™ is Chesapeake Financial Planners' six-step planning process: Review and Recognize, Uncover and Understand, Design and Develop, Discuss and Decide, Execute and Empower, and Reassess and Refine. The Review and Recognize step is where 10b5-1 questions live for an equity-rich client. If the company has a quarterly blackout window, if HR has ever asked you to clear a trade through legal, or if your equity is at or above six figures of total value, you are in the population that should at least price out a plan.
People often overcomplicate this for the opposite reason. A junior engineer with three RSUs vesting next quarter does not need a 10b5-1 plan to sell the same week the trading window opens. The cost of paperwork outweighs the marginal protection. The cleanest test is whether you would feel anxious selling outside a written plan. If yes, you are exactly the person the rule was built for.
What did the SEC change about 10b5-1 plans in the 2022 amendments?
The SEC's December 2022 amendments, which took effect on February 27, 2023, addressed a decade of academic research showing that insiders were using 10b5-1 plans to time sales around bad news. The amendments did five things you need to know.
First, they introduced a mandatory cooling-off period between when a plan is adopted and when the first trade can run. For directors and officers, the cooling-off period is the later of 90 days after adoption or two business days after the company discloses financial results for the fiscal quarter of adoption, capped at 120 days. For everyone else, it is 30 days.
Second, the rules now prohibit most overlapping 10b5-1 plans by directors and officers. You cannot stack one plan on top of another to give yourself flexibility. There are narrow exceptions for sell-to-cover transactions tied to vesting and for plans that cover an open-market trade after the first plan ends.
Third, only one single-trade plan is allowed in any 12-month period. A single-trade plan is one that pre-commits to a single transaction rather than a series. The new limit forces planners to use multi-tranche structures, which is generally the better design anyway.
Fourth, directors and officers must include a written certification in the plan stating that they are not aware of MNPI and that the plan is being adopted in good faith and not as part of a scheme to evade Rule 10b5-1.
Fifth, public companies now have to disclose plan adoptions, terminations, and modifications by directors and officers each quarter in Form 10-Q and Form 10-K. Form 4 filings for transactions made under a 10b5-1 plan also carry a checkbox identifying the plan. The disclosure regime, more than the substantive rules, is what changed the game. Plans are now public information shortly after they are signed. Jeff Judge notes: "The 2022 amendments turned 10b5-1 plans from a private arrangement into a public record, so any director or officer who thinks they can quietly modify or terminate a plan without scrutiny is working with an outdated assumption."
According to the SEC's December 2022 announcement, Chair Gary Gensler stated that the amendments would help fill potential gaps and reduce the abuse of Rule 10b5-1 by establishing meaningful cooling-off periods, conditioning the affirmative defense on insiders acting in good faith, and providing better disclosure of insider trades.
How do you actually set up a 10b5-1 plan without tripping over the fine print?
The mechanics involve three parties: you, your broker, and your company's legal or compliance team. The plan itself is a written contract. Most large brokers have template plan documents that they have already reviewed with their counsel and the issuer's counsel.
The steps in order. First, confirm with your company that you are eligible. Some issuers limit plan adoption to specific open windows, even though SEC rules technically do not require it. Second, decide on the design. The two common designs are a price-based plan, which sells shares when the stock crosses a threshold, and a calendar-based plan, which sells shares on fixed dates regardless of price. Many plans blend the two.
Third, have the broker draft the plan, including the trading instructions, the cooling-off period, and the good faith certification language. Fourth, review the draft with your tax advisor and financial planner to make sure the projected sales line up with your tax situation, your concentration target, and any expected income events. Fifth, sign the plan during an open trading window, when you do not hold MNPI. Sixth, file what needs to be filed. The company files the quarterly disclosure on Form 10-Q, and each trade carries the Form 4 disclosure with the 10b5-1 box checked.
The mistakes Jeff Judge sees most often are not legal mistakes. They are design mistakes. Selling too much at one price point. Forgetting to coordinate with planned exercises of incentive stock options. Setting the first trade so close to the cooling-off period that the plan has no flexibility if the price drops. Each one is fixable on the front end and very hard to fix later.
When does a 10b5-1 plan help, and when does it just add paperwork?
A plan helps when three conditions hold. You expect to be in possession of MNPI on a recurring basis. You have enough equity that selling matters to your financial plan. And you want predictability in your cash flow rather than waiting for trading windows to align with your needs.
A plan adds paperwork without much benefit when you have a small, concentrated position you intend to liquidate inside one open window, when you never actually receive MNPI in your role, or when the brokerage fees and administrative cost of running the plan exceed the value the plan protects.
The clearest example of when a plan earns its keep is a senior executive at a public company who wants to sell down a concentrated position over two or three years. The plan locks in a disciplined sell schedule. The schedule survives earnings cycles, product launches, and the inevitable urge to time the exit. Most executives who run a plan for a few years describe the same outcome: better risk-adjusted cash, fewer sleepless nights, and a cleaner regulatory record.
The clearest example of when a plan does not help is a recently public company employee with one tranche of vested RSUs they intend to sell immediately to fund a home down payment. A planned sale during the next open window does the job. A 10b5-1 plan for that single transaction means paying for legal review and a cooling-off period to do something the rules already allowed.
Related topics worth reading
A 10b5-1 plan is rarely a standalone decision. It sits inside a broader strategy around equity compensation, taxes, and concentration risk. A few related areas come up most often.
How Do I Avoid Surprise Tax Bills When My RSUs Vest? explains how vesting events drive your tax bill, why withholding usually falls short, and how plan design can offset some of the bite.
What Is the Difference Between ISO and NSO Stock Options? covers the difference between incentive and non-qualified stock options and why an exercise strategy without a sale plan is only half the work.
How do I diversify a concentrated company stock position without a huge tax bill? walks through the math of being overexposed to a single ticker and the tax-aware techniques for diversifying out.
What Should I Do 6 Months Before My IPO Lockup Expires? is the companion piece for pre-IPO employees thinking about when and how to adopt a plan around lockup expiration.
How Much Company Stock Is Too Much in My Portfolio? frames the broader portfolio risk that a 10b5-1 plan is usually designed to address.
What do double-trigger RSUs at a private company mean for me? explains the wrinkle that drives many pre-IPO plan timing decisions.
Frequently Asked Questions
Can I cancel a 10b5-1 plan if my situation changes?
Yes, you can terminate a 10b5-1 plan at any time, but a cancellation, even a lawful one, has consequences for the affirmative defense on prior or future trades. The SEC's 2022 amendments make clear that frequent terminations or modifications are evidence that the plan was not entered in good faith. Most companies' insider trading policies require that any modification or cancellation occur outside a blackout window and trigger a new cooling-off period before any new plan can begin trading.
Do I have to disclose my 10b5-1 plan to the public?
If you are a director or officer at a public company, yes. The amended rules require quarterly disclosure of plan adoptions, terminations, and material modifications by directors and officers in Form 10-Q and Form 10-K. Individual trades made under a 10b5-1 plan are also disclosed on Form 4 with a specific checkbox. Rank-and-file employees who are not officers or directors do not have a personal public disclosure obligation, although the company's internal policies often still require sign-off.
What is the cooling-off period for a 10b5-1 plan?
The cooling-off period is the mandatory waiting time between when you sign the plan and when the first trade can run. For directors and officers, the period is the later of 90 days after adoption or two business days after the company files financial results for the fiscal quarter of adoption, capped at 120 days. For other employees, the cooling-off period is 30 days after adoption.
Can I have more than one 10b5-1 plan at the same time?
Generally, directors and officers cannot have overlapping 10b5-1 plans, with narrow exceptions for sell-to-cover transactions tied to vesting and for plans that begin trading after a prior plan has fully terminated. Only one single-trade plan is allowed in any 12-month period for any plan adopter. The rule is designed to prevent insiders from stacking plans for timing flexibility, which was a common abuse before the 2022 amendments.
Does a 10b5-1 plan protect me from taxes on the sale?
No. A 10b5-1 plan addresses insider trading risk, not tax exposure. Sales under the plan still produce capital gains or losses, and RSU vesting still generates ordinary income on the vesting date. The plan can be coordinated with tax planning to spread sales across years, manage AMT exposure tied to ISO exercises, and avoid bunching gains into a single tax year. Coordination of the two is the point.
How long should my 10b5-1 plan run?
Most plans run between 12 and 24 months. Shorter plans, especially single-trade plans, have less protective value and trigger the 12-month limit on single-trade plans. Plans that run too long lose flexibility because you cannot freely modify them. Jeff Judge usually recommends a 12 to 18 month horizon for executives who expect to keep selling and a longer horizon for a fixed diversification path.
If you found this 10b5-1 plan walkthrough helpful, our equity compensation planning guide covers the same framework Jeff uses with executive clients, including RSU vesting, option exercises, and 10b5-1 plan design in detail. Download it at chesapeakefp.com.
Disclosures
The information provided is for educational purposes only and should not be construed as investment advice. Investment strategies should be tailored to individual circumstances, risk tolerance, and goals. Past performance doesn't guarantee future results. Consult with qualified financial professionals regarding your specific situation.
Advisors associated with Chesapeake Financial Planners may be either (1) LPL Financial Registered Representatives offering securities through LPL Financial, Member FINRA and SIPC, and investment advisor representatives offering investment advice through Great Valley Advisor Group; or (2) solely investment advisor representatives offering investment advice through Great Valley Advisor Group and not affiliated with LPL Financial. Great Valley Advisor Group, and Chesapeake Financial Planners are separate entities from LPL Financial.
