409A Valuation Refresh Schedule: When to Update Your Valuation
Author: Redwood Valuation Content Team
Published: July 18, 2026
A 409A valuation is only useful for option grants if it remains reasonable as of the grant date. That timing matters because stock options are generally intended to be granted at or above the fair market value of the company’s common stock. If a company continues to rely on an outdated valuation after the underlying facts have changed, the resulting grants can create tax exposure for the option holders and compliance issues for the company.
Treasury Regulation §1.409A-1(b)(5)(iv)(B) sets the basic framework. A prior valuation may stop supporting reasonable reliance in either of two situations: the valuation is more than 12 months old as of the option grant date, or new information has become available after the valuation date that may materially affect the company’s fair market value.
The 12-month rule is the outside limit. Many companies need a refresh earlier because financing activity, operating performance, transaction discussions, or other developments may change what a willing buyer would pay for the company’s common stock. The practical question is therefore broader than “Has it been a year?” Companies also need to ask whether the facts supporting the last valuation still reflect the company as it exists today.
This guide explains the two-part staleness standard, the events that commonly prompt a refresh, how to think about the widely cited “90-day window,” how refresh cadence changes by stage, and what can happen when options are issued after a valuation is no longer reasonable to rely on.
The Two-Part Staleness Standard
Under Treasury Regulation §1.409A-1(b)(5)(iv)(B), a valuation may no longer be reasonable for later option grants in two separate circumstances:
Time-based staleness: The valuation was calculated as of a date more than 12 months before the grant date.
Information-based staleness: New information became available after the valuation date that may materially affect the company’s value.
Either condition can make continued reliance unreasonable. Both do not need to be present.
The regulation states that a prior valuation is not reasonable as of a later date if it fails to reflect information available after the valuation date that may materially affect the corporation’s value, such as the resolution of material litigation or issuance of a patent, or if the valuation date is more than 12 months earlier than the date for which the valuation is being used.
Two details matter in practice. First, the 12-month clock runs from the effective date of the valuation, not the date the report was delivered. If a valuation has an effective date of January 15, 2025, it cannot support option grants made on January 20, 2026, even if the final report was delivered later.
Second, the regulation gives examples of material information but does not provide a complete list. The question is whether the new information may materially affect value. That is a facts-and-circumstances reasonableness test, not a checklist.
One terminology point is also important. Section 409A uses the fair market value standard. “Fair value” is the U.S. GAAP financial reporting standard under ASC 820. The terms sound similar, but they refer to different valuation regimes with different measurement objectives. In a 409A context, the relevant standard is fair market value.
Events That Commonly Prompt a 409A Refresh
The regulation does not list every event that requires a new valuation. It asks whether new information may materially affect value. In practice, certain developments commonly lead companies to consult their appraiser before making additional option grants.
Common refresh triggers include:
New equity financing rounds. Priced rounds, including Series A, B, C, and later-stage financings, almost always warrant a new analysis. SAFEs and convertible notes require a more fact-specific review.
Down rounds. A financing round at a lower price per share than a prior round often signals a material change in the company’s valuation environment.
M&A discussions or a letter of intent. Even an unsigned indication of interest can matter if the discussions have become concrete enough to affect how a willing buyer would price the company.
IPO preparation. As an anticipated IPO becomes more visible, the relationship between current performance, exit timing, and equity value can change quickly.
Secondary transactions in common stock. A secondary transaction may inform value, but not every secondary trade is reliable. Appraisers typically consider the frequency of transactions, the number of buyers and sellers, the volume of shares traded, and whether both sides had access to current financial information.
Significant changes in financial performance. A sharp decline in ARR compared with projections, the loss of a major customer, or unexpected growth acceleration can affect value.
Leadership changes. The departure of a CEO, founder, or key executive can change the company’s outlook and investor appetite.
SAFEs and convertible notes deserve particular care. A small SAFE from one investor may have little effect on the value of the company’s common stock. Multiple SAFE closings totaling several million dollars, especially across many investors, may indicate a meaningful change in capitalization, investor expectations, or business outlook. The question remains the same: does the specific activity introduce new information that may materially affect fair market value?
Boards should involve the appraiser when that question is unclear. The board approves option grants, but the valuation question requires an assessment of the facts, the company’s capitalization, and the relevant market data.
The 90-Day Convention: Useful Planning Tool, Not a Rule
There is no regulatory requirement to obtain a new 409A valuation within 90 days after a material event. Treasury Regulation §1.409A-1(b)(5)(iv)(B) does not provide a post-event deadline. The regulation asks whether new information exists that may materially affect value.
The 90-day reference appears often in legal blogs, competitor guidance, and equity management content because it reflects a common operating convention. It is useful because valuation work takes time, board approvals often follow financing activity, and companies typically want a current valuation before issuing the next option grants.
The convention should not be mistaken for the compliance standard. A major Series B financing could make continued reliance on the prior valuation unreasonable immediately after the receipt of a binding offer. A minor variance from projections might not require a refresh months later. The regulatory standard is tied to material information, not a fixed number of days.
For planning purposes, the better approach is to start the refresh process promptly after a potentially material event, especially if another option grant cycle is approaching. That gives the appraiser time to review the event, request updated materials, and determine whether a new valuation is needed.
How Refresh Cadence Changes by Company Stage
409A refresh cadence depends on stage, transaction activity, and proximity to liquidity. Early-stage companies often operate on an annual cycle unless a material event occurs. Growth-stage companies typically add event-triggered updates. Companies preparing for an IPO often refresh quarterly or more frequently.
| Stage | Typical Cadence | Key Triggers | Notes |
|---|---|---|---|
| Early-stage, seed or pre-Series A | Annual | Funding rounds, material performance changes, and other material events | The 12-month outside limit is often the primary constraint |
| Growth-stage, Series A through late-stage | Annual plus event-triggered updates | Funding rounds, down rounds, M&A discussions, material performance changes | Significant developments should be reviewed with the appraiser |
| Pre-IPO, generally 12 to 18 months before an anticipated IPO | Quarterly or more frequent | Rapid changes in value as exit visibility increases | Method 3 below may become unavailable as the liquidity event approaches |
For growing companies, the refresh calendar is only part of the issue. The safe harbor method may also need to change.
Treasury regulations provide three safe harbor methods that can support the rebuttable presumption of reasonableness:
Method 1: An independent appraisal by a qualified independent appraiser.
Method 2: A qualifying formula-based valuation applied consistently to all transactions involving that class of stock.
Method 3: The illiquid start-up presumption, available only to qualifying early-stage companies.
Method 3 can become unavailable as a liquidity event approaches. Under Treas. Reg. §1.409A-1(b)(5)(iv)(B)(2), the illiquid start-up method generally cannot be used when a change in control is reasonably anticipated within 90 days or when an IPO is reasonably anticipated within 180 days.
“Reasonably anticipated” is a facts-based determination. It does not depend solely on a single event such as filing an S-1 or signing a term sheet. The analysis turns on when the IPO or acquisition has become a sufficiently concrete expectation. For a company relying on Method 3, an anticipated liquidity event should prompt early planning around a transition to Method 1.
Consequences of Issuing Options on a Stale Valuation
If a company grants options after the supporting valuation can no longer support reasonable reliance, the options may be treated as below-fair-market-value deferred compensation. The tax consequences generally fall on the employees or contractors who received the options.
Under §409A, the taxpayer is the service provider, meaning the individual option holder. The company may have withholding and reporting obligations, including W-2 box 12 code Z for employees and Form 1099 box 14 for non-employees. The income inclusion and additional tax, however, attach to the individual.
The potential consequences for the affected option holder include:
Income inclusion: The discount amount, equal to FMV minus the strike price, is included in gross income once vested.
20% additional income tax: Section 409A(a)(1)(B)(i)(II) imposes an additional income tax.
Premium interest tax: Interest may be computed from the year the amount was initially deferred or, if later, the first year the amount vested.
Legal costs: These issues can be expensive to resolve, particularly during a financing or acquisition.
Financial statement audit costs: If §409A issues affect compensation expense under ASC 718, the company may face additional audit procedures and related costs.
A valuation that qualifies for the rebuttable presumption of reasonableness gives the company and option holders a stronger defensive position. The IRS can rebut the presumption only by showing that the valuation method, or the application of that method, was grossly unreasonable. Without the presumption, the analysis reverts to general facts-and-circumstances reasonableness.
Subsequent material events generally affect future reliance on a valuation rather than retroactively changing the treatment of prior option grants that were issued under a then-current valuation. Staleness under the regulation applies to the date for which the valuation is being used. As a result, options already granted at a strike price supported by a then-current valuation are typically not put at risk solely because a later material event occurs.
That distinction matters for companies that have already issued options and are now approaching a financing, acquisition discussion, or other material event. Prior grants may have been supportable when made. The next grant still needs a valuation that remains reasonable as of the new grant date.
One IRS examination point is also worth clarifying. The IRS Nonqualified Deferred Compensation Audit Technique Guide, Rev. 3-2024, Pub. 5528, provides examination guidance for nonqualified deferred compensation arrangements broadly, including certain §409A issues involving stock rights. It is not a 409A-specific audit guide. When option pricing is reviewed, the fair market value determination is typically the central issue.
What the Annual Renewal Process Looks Like
Once a refresh is needed, the next question is timing. Annual renewals often move faster than first-time valuations because the appraiser already has the company background, prior methodology, and historical capitalization structure.
For routine renewals with no material changes, some providers can complete the engagement within a few business days after receiving the required documents. More complex situations, especially those involving financing activity, secondary transactions, major performance changes, or a near-term exit, usually take longer.
The appraiser will typically request:
At least three years of financial statements, if available
Updated financial projections
A summary of significant business developments since the prior valuation
The current capitalization table
Any additional information relevant to the company’s circumstances
In our practice, most 409A valuations are completed within three to four weeks after receiving all requested information. Expedited timelines may be available for time-sensitive situations. The important timing point is that the clock starts when the appraiser receives complete information, not when the engagement letter is signed.
Companies should therefore look ahead to board meetings and planned grant cycles. If the valuation is approaching its 12-month anniversary, or if a material event has occurred, the appraiser should be contacted before the grant cycle is underway.
Conclusion
A 409A refresh schedule should account for both timing and new information. The 12-month limit is real, but it is only one part of the standard. A valuation may need to be updated earlier if financing activity, business performance, transaction discussions, or other developments may materially affect fair market value.
The 90-day convention can help companies plan, but it does not replace the regulatory standard. For companies approaching an IPO or acquisition, safe harbor eligibility also deserves attention, especially if the company has relied on Method 3.
The most practical step is to contact the appraiser before the next option grant cycle. A short conversation early in the process is far easier than addressing stale-valuation issues after grants have already been issued.
Frequently Asked Questions
How long is a 409A valuation valid?
A 409A valuation may generally support reliance for up to 12 months from its effective date, provided no new information becomes available that may materially affect the company’s fair market value. A valuation can become stale before the 12-month anniversary if a material event occurs.
Is there a 90-day rule for updating a 409A after a material event?
No. There is no regulatory requirement to refresh a 409A valuation within 90 days after a material event. The 90-day concept is an industry convention used for planning. The regulatory question is whether new information may materially affect the company’s value.
What events require a new 409A valuation?
There is no exhaustive regulatory list. Events that commonly prompt appraiser consultation include new funding rounds, down rounds, M&A discussions, meaningful secondary transactions, significant changes in financial performance, and leadership changes. Whether a specific event requires a refresh depends on the facts.
Does a material event invalidate past option grants?
Generally, a later material event affects future reliance on the valuation rather than prior grants made under a then-current valuation. Prior grants are typically evaluated based on the facts known as of the grant date. Prospective grants require a valuation that remains reasonable as of the new grant date.
Do we need a new 409A after a SAFE?
Not automatically. A small SAFE may not materially affect the value of common stock. Multiple SAFE closings or a substantial SAFE financing may warrant appraiser consultation, especially if the activity reflects a meaningful change in capitalization or business expectations.
How often do pre-IPO companies update their 409A?
Pre-IPO companies often update their 409A valuation quarterly or more frequently, particularly in the 12 to 18 months before an anticipated offering. Companies relying on Method 3 should also consider whether the illiquid start-up safe harbor remains available once an IPO is reasonably anticipated within 180 days.
How long does an annual 409A renewal take?
Routine renewals with no material changes may be completed within a few business days after document submission. More complex valuations take longer. In our practice, most valuations are completed within three to four weeks after all requested information has been received.
About Redwood: Redwood Valuation provides independent 409A valuations for private companies managing annual renewals, option grants, and event-triggered refreshes. Our credentialed appraisers help companies assess whether a current valuation remains supportable after financing rounds, secondary transactions, M&A discussions, or other material changes.
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