409A Valuation Refresh Schedule: When to Update Your Valuation
Author: Redwood Valuation Content Team
Published: May 22, 2026
A 409A valuation refresh is not a one-and-done task. Every time the company issues stock options, those grants rely on a concluded common stock value that should remain reasonable as of the grant date. Getting that timing wrong, even once, can expose option holders to significant tax consequences.
Under Treasury Regulation §1.409A-1(b)(5)(iv)(B), a prior 409A valuation may no longer support reasonable reliance for subsequent grants in two distinct situations: the valuation is more than 12 months old as of the grant date, or new information has emerged after the valuation date that may materially affect the company's fair market value (FMV). The 12-month outer boundary is the regulatory ceiling. Many growing companies cross the second threshold well before the calendar year is up.
This guide walks through both staleness conditions, which events commonly prompt companies to consult their appraiser, what the widely cited "90-day window" actually is (and is not), how refresh cadence scales with company stage, and what happens when options are issued while 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 prior valuation may no longer support reasonable reliance, and continued use for subsequent grants may not be reasonable, in two distinct situations:
Time-based: The valuation was calculated with respect to a date more than 12 months earlier than the date for which it is being used (i.e., the relevant option grant date).
Information-based: New information available after the valuation date may materially affect value.
Either situation alone is sufficient. Both need not be present.
The regulation's exact language is worth quoting because it is frequently mischaracterized: "A valuation previously calculated under a valuation method is not reasonable as of a later date if such calculation fails to reflect information available after the date of the calculation that may materially affect the value of the corporation (for example, the resolution of material litigation or the issuance of a patent) or the value was calculated with respect to a date that is more than 12 months earlier than the date for which the valuation is being used."
Two points in that language matter operationally. First, the 12-month clock runs from the effective date of the valuation, not the date the report was delivered. If the valuation has an effective date of January 15, 2025, and option grants are delivered on January 20, 2026, the valuation is past the 12-month window regardless of when the PDF arrived. Second, the regulation provides examples of material information (resolution of material litigation, issuance of a patent) but does not provide an exhaustive list. The standard is whether new information may materially affect value, a facts-and-circumstances reasonableness test rather than a checklist.
One terminology note that matters: §409A uses the fair market value (FMV) standard. "Fair value" is the ASC 820 financial reporting standard, a different framework with a different measurement basis. These terms are not interchangeable, and using them interchangeably signals a misunderstanding of which regime applies.
Events That Commonly Prompt Companies to Seek a Refresh
There is no exhaustive regulatory list of events that require a new 409A valuation. The regulation's standard is fact-specific: new information that may materially affect value. In practice, certain developments commonly prompt companies to consult their appraiser about whether an updated valuation is needed.
Developments that typically prompt that conversation include:
New equity financing rounds: priced rounds (Series A, B, C, etc.) almost always warrant a fresh look. SAFEs and convertible notes warrant appraiser consultation, though they do not automatically prompt a refresh (more on this below).
Down rounds: a financing round at a lower price per share than prior rounds often indicates a material change in the company's valuation environment and typically warrants appraiser consultation before subsequent option grants.
M&A discussions or a letter of intent: even an unsigned expression of interest may be relevant. Once acquisition discussions become concrete enough to affect how a willing buyer would price the company, continued reliance on the prior valuation may not be reasonable.
Entry into the IPO preparation window: as a company's expected exit becomes more visible, the relationship between current financial performance and anticipated exit value changes rapidly.
Secondary transactions in common stock: these may or may not be indicative of value. In our practice, not all secondary transactions are reliable pricing events. Whether a secondary transaction should inform a new valuation typically depends on four factors: the frequency of transactions, the number of buyers and sellers involved, the volume of shares traded, and the level of financial information available to both parties. Information asymmetry (where one side lacks access to current financials) can disqualify an otherwise arm's-length transaction from serving as a reliable indicator of value.
Significant changes in financial performance: a sharp decline in ARR (Annual Recurring Revenue) from projections, loss of a major customer representing a substantial portion of revenue, or unexpected acceleration of growth can each affect what a willing buyer would pay.
Leadership changes: departure of a CEO or founding team member can affect business outlook and investor appetite for the company.
SAFEs and convertible notes deserve a closer look. A single small SAFE from one investor may not shift the company's value in any meaningful way. A company that has closed multiple SAFEs totaling several million dollars across many investors, reflecting a material change in capitalization and business expectations, may warrant a conversation with its appraiser. The determination is fact-specific: the question is always whether the specific activity may materially affect what a willing buyer would pay for common stock.
The board does not make that determination alone. Companies should consult with their appraiser to assess whether a specific event may materially affect value enough to warrant an updated valuation. That is a different conversation than a compliance checkbox.
The 90-Day Convention: What It Is (and Is Not)
There is no regulatory requirement to obtain a new 409A valuation within 90 days of a material event, or within any other specific number of days. The 90-day window is industry practice, not a statutory rule.
"90 days" appears repeatedly across competitor content, legal blogs, and equity management platforms. Trace any of those references to a regulatory source and the source is not there. Treasury Regulation §1.409A-1(b)(5)(iv)(B) does not specify a post-event day count. The staleness standard is facts-based: does new information exist that may materially affect value? There is no regulatory clock that starts ticking when a funding round closes.
The practice exists anyway for sound operational reasons:
Companies typically want a current valuation before issuing the next round of option grants. When a funding round closes in March and grants are planned for April, the refresh has to be completed in between.
The refresh process itself takes time. Even routine annual renewals can take a few weeks from the moment the appraiser has all requested documents in hand.
Anchoring to a prompt start (rather than a 90-day deadline) typically ensures the updated valuation is ready when the next grant cycle arrives.
Anchoring to "90 days" as the compliance standard misses the point. A major Series B could render continued reliance on a prior valuation unreasonable the day the round closes. A minor financial variance from projections might not change the analysis after 180 days. The standard is facts-based, not time-based. In our practice, many companies seek updated valuations promptly after potentially material events. That is sound practice, not a regulatory command.
Stage-Specific Refresh Calendar
Refresh cadence is not one-size-fits-all. It scales with company stage, transaction activity, and proximity to a liquidity event. Early-stage companies typically follow an annual cadence; growth-stage companies add event-triggered updates; companies approaching an anticipated IPO often refresh quarterly or more frequently.
Here is how that typically maps in practice:
Typical 409A Refresh Cadence by Company Stage
| Stage | Typical Cadence | Key Triggers | Notes |
|---|---|---|---|
| Early-stage (Seed / Pre-Series A) |
Annual | Material events | 12-month outer boundary is the primary constraint. |
| Growth-stage (Series A through late-stage) |
Annual + event-triggered | Funding rounds, down rounds, M&A discussions | Each significant development warrants appraiser consultation. |
| Pre-IPO (12–18 months before anticipated IPO) |
Quarterly or more frequent | Value changes rapidly as exit visibility increases | Method 3 may become unavailable at this stage. |
What the table cannot show is the structural shift that often catches growing companies off guard: the moment Method 3 may become unavailable.
Under Treasury Regulations, three safe harbor methods exist for qualifying a valuation for the rebuttable presumption of reasonableness: Method 1 (independent appraisal by a qualified independent appraiser), Method 2 (a qualifying formula-based valuation applied consistently to all transactions involving that class of stock), and Method 3 (the illiquid start-up presumption, available to qualifying early-stage companies). Each carries distinct qualifying conditions, and the method used shapes how refresh works.
For companies relying on Method 3 (the illiquid start-up safe harbor), a critical planning point arises as a liquidity event approaches. Under Treas. Reg. §1.409A-1(b)(5)(iv)(B)(2), Method 3 generally becomes unavailable when a change of control is reasonably anticipated within 90 days, or when an IPO is reasonably anticipated within 180 days. Once either threshold is crossed, Method 3 is no longer available. The company would generally need to rely on Method 1 (independent appraisal by a qualified independent appraiser) or Method 2 (a consistently applied formula) to maintain reliance on the rebuttable presumption of reasonableness, but the illiquid start-up path closes.
"Reasonably anticipated" is a facts-based determination. It is not tied to a single moment such as the S-1 filing or term sheet signing. It is when an IPO or acquisition becomes a sufficiently concrete expectation. For growth-stage companies, this is a planning signal rather than a penalty: when Method 3 is the current path and an IPO is roughly 18 months out, the time to transition the appraiser relationship to Method 1 is now, not later.
Consequences of Issuing Options on a Stale Valuation
When options are granted while the supporting 409A valuation can no longer support reasonable reliance, those options may be treated as below-fair-market-value deferred compensation. The consequence falls on the people who received the options.
Under §409A, the taxpayer is the service provider (the employee or contractor who received the options), not the company. The company carries withholding and reporting obligations (W-2 box 12 code Z for employees; Form 1099 box 14 for non-employees), but the §409A income inclusion and additional tax attach to the individual option holder.
The full picture for the affected service provider includes:
Income inclusion: the discount amount (FMV minus strike price) once it vests is included in gross income.
20% additional income tax under §409A(a)(1)(B)(i)(II): an additional income tax, not an excise tax.
Premium interest tax: computed from the year the amount was initially deferred, or, if later, the first year the amount vested.
Legal costs: often substantial when a §409A issue surfaces during a financing or acquisition.
Financial statement audit costs: when §409A compliance failures affect compensation expense calculations under ASC 718, financial statement audits may require additional scope, at the company's cost rather than the option holder's.
When a valuation qualifies for the rebuttable presumption of reasonableness, the IRS can rebut it only by demonstrating that the valuation method or its application was grossly unreasonable. Outside the presumption, the standard reverts to facts-and-circumstances reasonableness: a less favorable defensive position for the company and affected service providers.
One important reassurance, with the appropriate hedge: subsequent material events generally affect future reliance on the valuation rather than retroactively altering prior grants issued under a then-current valuation. Staleness under the regulation applies to the date for which the valuation is "being used," a generally prospective framing. Options already granted at a strike price supported by a then-current valuation are typically not put at risk solely by a later material event. Only prospective grants require a valuation that continues to support reasonable reliance.
That framing is reassuring for companies that have already issued options and are now navigating a material event. It is not a reason to delay a refresh. The next grant remains exposed until the updated valuation is in hand.
A note on IRS examination context: the IRS Nonqualified Deferred Compensation Audit Technique Guide (Rev. 3-2024, Pub. 5528) provides examination guidance for nonqualified deferred compensation arrangements broadly, including issues that arise under §409A for stock rights. It is not a §409A-specific audit guide. When examiners review option pricing, the FMV determination is typically the focus rather than the ATG's broader NQDC framework.
What the Annual Renewal Process Looks Like
Once a refresh is warranted, the operational question is: how quickly can it be completed? Annual renewals typically move faster than companies expect. Much of the company-specific background and methodology framework from the prior engagement is already in place, which means the work does not start from zero.
For routine renewals with no material changes, many providers complete the engagement in as few as 2–5 business days from document submission.
The appraiser will ask for a standard set of documents. The list is shorter than it sounds:
At least 3 years of financial statements (not just the trailing 12 months)
Updated financial projections and a description of significant business developments since the prior valuation
Current cap table
Any additional factors specific to the company's circumstances
In our practice, most 409A valuations are completed within 3–4 weeks of receiving all requested information. Expedited timelines are available for time-sensitive situations. One clarification worth making explicit: the clock starts when the appraiser has received complete information, not when the engagement letter is signed.
The practical implication is obvious but often ignored. Don't wait until the day before the board meeting to reach out. Option grant cycles move faster than valuations. When the planning window for a grant cycle is open and the valuation is approaching its 12-month anniversary, or a financing has recently closed, contact the appraiser early, before the urgency hits.
Conclusion
Valuation refresh is not a single-deadline problem. It is an ongoing discipline, and one often simplified in public-facing guidance.
The 12-month outer boundary is real. The information-based trigger is equally real and far less discussed. The 90-day convention is a planning heuristic, not a regulatory command. And when Method 3 is the current path and a liquidity event approaches, the transition window can close before most companies realize it has started.
The most practical advice is also the simplest: contact the appraiser before the next grant cycle, not after. That conversation is shorter than most companies expect, and far simpler than addressing stale-valuation issues after grants have been issued.
Redwood works with companies at every stage to establish a valuation refresh cadence that supports their equity plans. When uncertainty remains about whether a current valuation continues to support reliance, that is the right conversation to have now.
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 information emerges in the interim that may materially affect the company's fair market value (FMV). Both conditions matter: a valuation less than 12 months old may still no longer support reasonable reliance when a material event has occurred. Either trigger (time elapsed or new material information) is sufficient on its own to make continued reliance unreasonable.
Is there a 90-day rule for updating a 409A after a material event?
No. There is no regulatory requirement to refresh within 90 days or within any other specific number of days after a material event. In our practice, many companies seek updated valuations promptly after potentially material events. That is industry convention, not a statutory rule. The actual regulatory standard asks whether new information may materially affect the company's value; it specifies no day count.
What events require a new 409A valuation?
No exhaustive regulatory list exists. Events that commonly prompt companies to consult their appraiser include new funding rounds, down rounds, M&A discussions, and significant changes in financial performance. Whether a specific event warrants a refresh is a fact-specific determination, and not a board determination alone. Consult the appraiser when uncertainty arises.
Does a material event invalidate past option grants?
Generally not. Staleness under the regulation applies to grants made after the staleness point. Prior grants issued under a then-current valuation are typically not retroactively affected by subsequent material events. Only prospective grants require a valuation that continues to support reasonable reliance.
Do we need a new 409A after a SAFE?
Not automatically. Material SAFE activity may make continued reliance on the prior valuation unreasonable, but the determination is fact-specific. A single small SAFE may not warrant a refresh. A series of material SAFE closings, particularly where the total amount represents a meaningful change in capitalization or business expectations, may warrant a conversation with the appraiser.
How often do pre-IPO companies update their 409A?
Typically quarterly or more frequently in the 12–18 months before an anticipated offering. Companies relying on the illiquid start-up method (Method 3) should also note that Method 3 generally becomes unavailable once an IPO is reasonably anticipated within 180 days. At that point, the company would generally need to rely on Method 1 (independent appraisal by a qualified independent appraiser) to maintain reliance on the rebuttable presumption of reasonableness. The quarterly cadence is industry practice; the Method 3 threshold is regulatory.
How long does an annual 409A renewal take?
For routine renewals with no material changes, many providers complete the engagement in 2–5 business days from document submission. Complex situations, or those involving material events since the prior valuation, take longer. In our practice, most valuations are completed within 3–4 weeks of receiving complete information. The clock starts at information receipt, not at engagement signing.
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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