How Often Do You Need a 409A Valuation Update?

Last Updated: March 2026

A 409A valuation update is required whenever the existing valuation is more than 12 months old, or when a material event has occurred that would cause a reasonable person to conclude the company’s fair market value has materially changed since the last valuation date. IRC Section 409A does not allow companies to grant stock options using an outdated or stale FMV conclusion; doing so creates the same tax and penalty risk as having no 409A valuation at all. Sofer Advisors, a nationally recognized business valuation firm led by David Hern CPA ABV ASA, provides 409A refresh valuations for startups and growth companies at every stage. Schedule a consultation to build your 409A refresh schedule.

Key Takeaways

  • A 409A valuation expires after 12 months from the measurement date, or earlier if a material event occurs, whichever comes first.
  • Material events that require an immediate 409A update include closing a new financing round, receiving a term sheet for an acquisition or merger, launching a new product that materially changes projections, and significant declines in revenue or business performance.
  • Companies that grant options multiple times per year must ensure each grant uses a current 409A; a single annual 409A is not sufficient if grants occur throughout the year after material events.
  • The IRS safe harbor for 409A requires that options be priced at FMV as of the grant date; using a valuation from a different date does not satisfy the safe harbor.
  • A 409A refresh engagement is typically faster and less expensive than the original valuation because the appraiser can build on prior work; typical refresh timelines are 1-3 weeks.

Why This Matters

Many startup founders treat the 409A as a one-time compliance task rather than an ongoing program. The result is a company that completes a 409A during its Series A, then continues granting options for the next 18 months without an update, despite closing a Series B, growing revenue 3x, and receiving acquisition inquiries. Every option grant made using a stale 409A is non-compliant, creating back-taxes and penalties for employees who may not even know the risk they carry. Building a systematic 409A refresh schedule, tied to the company’s funding calendar and grant cycle, eliminates that risk.

When Does a 409A Valuation Expire?

A 409A valuation expires on the earlier of two dates:

12 months from the measurement date: A valuation with a measurement date of January 1, 2026 expires on December 31, 2026, regardless of whether any material events have occurred. Any option grant after that date uses a stale valuation.

The occurrence of a material event: If a material event occurs before the 12-month anniversary, the existing valuation is no longer presumed reasonable for grants made after the event. The company must obtain a new valuation reflecting the updated FMV before making additional grants.

The 12-month rule is absolute. Even if nothing has changed in the business, a valuation older than 12 months cannot be used for new grants. Some companies interpret the 12-month rule as “12 months from the date the report was issued” rather than “12 months from the measurement date”; the correct reference is the measurement date, which is typically the date as of which the FMV was determined (often the date of the most recent financing or the date of the engagement).

What Counts as a Material Event?

A material event is any event or change in circumstances that would cause a reasonable, informed buyer to form a materially different opinion of the company’s FMV. The IRS does not provide an exhaustive list, but the following are universally recognized as material events that require a 409A refresh:

Equity financing events:

  • Closing a seed round, Series A, B, C, or later equity financing
  • Issuing convertible notes at terms that imply a specific valuation cap or floor
  • Completing a secondary sale of equity at a price that establishes a new data point for common stock or preferred stock value

Operational material events:

  • A significant increase in revenue, such as closing a contract that represents more than 25% of trailing annual revenue
  • A significant decline in revenue or loss of a major customer representing more than 15% of revenue
  • Launching a materially new product line or entering a new market that changes the company’s risk/return profile

Strategic material events:

  • Receiving a signed letter of intent for an acquisition or merger
  • Entering preliminary discussions with an investment bank for an IPO
  • A significant change in the competitive landscape (entry of a well-funded competitor, loss of intellectual property protection)

Any of these events can cause the FMV of common stock to change materially. Granting options after a material event without a refreshed 409A exposes the company to a non-compliance finding if the new FMV would have been materially different from the prior 409A conclusion. | Trigger Category | Example Events | Refresh Required?

How Should Companies Structure Their 409A Refresh Schedule?

A proactive 409A refresh schedule aligns option grants with valuation currency. The following approach minimizes compliance risk:

Annual minimum: Plan for at least one 409A per year, scheduled far enough before the annual option grant cycle to ensure the valuation is complete before grants are issued. Many companies time their annual 409A to coincide with fiscal year-end, board approval of the option budget, and the beginning of annual compensation reviews.

Post-financing trigger: Budget for a 409A refresh within 60-90 days of each financing event. The new valuation should reflect the capital structure and implied FMV established by the financing. Do not grant options in the window between a financing close and the completion of the 409A refresh.

Pre-grant review: Before approving any batch of option grants, the board should confirm that the 409A is current (within 12 months, no intervening material events). Legal counsel and finance teams should add this check to the standard option grant approval process.

The companies with the most strong 409A histories, and the fewest compliance problems during M&A or IPO review, are those that treat the 409A as a routine operating process rather than a reactive compliance exercise. To build a proactive refresh schedule tailored to your grant cycle, Schedule a consultation with Sofer Advisors.

How Long Does a 409A Refresh Take?

A 409A refresh valuation at Sofer Advisors typically takes 1-3 weeks from document receipt, compared to 2-4 weeks for an initial engagement. The refresh is faster because:

  • The appraiser already understands the capital structure, business model, and risk profile from prior work
  • Historical financial analysis is already completed; only the most recent period needs to be updated
  • The equity allocation model (OPM, PWERM, or hybrid) is already built; inputs are updated rather than rebuilt
  • The comparable company and transaction analysis is refreshed with current data rather than reconstructed from scratch

Required documents for a refresh include: current cap table (fully diluted), financial statements for the intervening period, any new term sheets or financing documents, and updated management projections if applicable.

The turnaround can be expedited if option grants are time-sensitive, such as a grant to a newly hired key executive who has a start date tied to the grant.

What Are the Risks of Not Updating a 409A on Time?

Granting options without a current 409A creates non-compliance risk under IRC Section 409A that affects option holders, not the company. Specifically:

  • Options granted with a strike price below FMV are treated as deferred compensation at each vesting event
  • The option holder recognizes ordinary income at each vest date (not at exercise), even if the options are underwater or have not been exercised
  • A 20% excise tax is added on top of ordinary income tax
  • State income taxes may add additional penalties (California adds a further 20% for Section 409A violations)
  • Interest accrues from the vest date on all unpaid taxes

Companies whose employees later discover this risk through M&A diligence or IPO preparation face legal claims from employees seeking compensation for the tax burden they did not plan for. This is one of the most common “hidden liabilities” identified in startup M&A transactions.

Frequently Asked Questions

How often do you need to update a 409A valuation?

A 409A valuation must be updated at least every 12 months. If a material event occurs before the 12-month anniversary, an update is required before any new option grants. Material events include closing a new financing round, receiving an acquisition term sheet, experiencing significant changes in financial performance, or entering formal IPO preparation processes. Companies that grant options only once per year can often manage with a single annual 409A; companies that grant throughout the year need to ensure each grant date is covered by a current, non-expired valuation.

Schedule a consultation to get expert guidance.

Can a company use the same 409A for the whole year?

Yes, as long as no material events occur during the year and the valuation is not more than 12 months old at any grant date. A valuation dated January 1, 2026 can support option grants through December 31, 2026, provided the company has not closed a new financing round, received acquisition interest, or experienced material operational changes during that period. Most early-stage startups that grant options once per year can maintain compliance with a single annual 409A refresh.

What happens if a company grants options after its 409A expires?

If a company grants options after its 409A has expired (either due to age or a material event), the options may be considered to have been granted without a valid FMV determination. The IRS can challenge the strike price and recharacterize the options as deferred compensation, triggering ordinary income tax plus a 20% penalty on the option holder at each vesting event.

How does a financing round affect the 409A?

Closing a financing round is among the most common and most impactful material events for 409A purposes. The new round establishes a transaction price for preferred stock that, in the OPM or PWERM allocation model, directly affects the derived common stock FMV. A Series A at a $10 million post-money valuation implies a very different common stock FMV than a Series B at a $50 million post-money valuation.

Can the same 409A appraiser perform the annual refresh?

Yes, and it is generally efficient to use the same appraiser for refreshes because they are already familiar with the company’s capital structure, business model, and prior valuation methodology. The refresh builds on prior work, reducing both time and cost. However, the appraiser must still perform a fresh analysis of current conditions, updated financials, and any changes in market comparables.

What is the safe harbor period for a 409A grant?

The IRS safe harbor for 409A requires that the option be granted at FMV as of the grant date. A 409A valuation is presumed reasonable (safe harbor) if it is no more than 12 months old and no material event has occurred since the measurement date. The safe harbor does not have a specific “lookback” window; rather, the relevant question is whether the existing valuation is still current as of the actual grant date.

How much does a 409A refresh cost?

A 409A refresh from Sofer Advisors typically costs less than the original engagement because the appraiser can build on prior work. Refreshes typically range from $1,500 to $5,000 depending on the stage of the company, the complexity of the capital structure, and the degree of change since the prior valuation. Companies that complete annual refreshes on a regular schedule benefit from predictable budgeting and avoid the expedited-fee premium that applies when a grant is imminent and the valuation must be rushed.

Should a company grant options between a financing close and a 409A refresh?

Generally no. The period between a financing close and the completion of a refreshed 409A is a high-risk window for option grants because the new preferred stock price likely implies a higher common stock FMV than the prior 409A, but the new FMV has not yet been quantified. Grants made during this window using the old FMV may be challenged as below-market if the new 409A produces a materially higher conclusion.

What is the difference between a 409A measurement date and the grant date?

The measurement date is the date as of which the FMV is determined in the appraisal, typically the date of the most recent financing, the first day of a fiscal quarter, or another date that captures the company’s current economic state. The grant date is the date on which the board approves the option grant. The 409A measurement date can be before the grant date; the grant is compliant as long as the measurement date is within the 12-month safe harbor and no material events have occurred between the measurement date and the grant date.

How does Sofer Advisors manage the 409A refresh process for clients?

Sofer Advisors maintains a record of each client’s measurement date and proactively contacts the client approaching the 12-month anniversary to initiate the refresh. For clients on retainer or with anticipated grant schedules, Sofer coordinates the refresh timeline with the client’s option grant calendar, ensuring a new valuation is ready before each planned grant. The refresh process begins with a document request for updated financial statements, cap table, and any material events documentation.

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Executive Summary

A 409A valuation expires after 12 months from the measurement date or upon a material event, whichever comes first. Material events include new financing rounds, acquisition interest, and significant operational changes. Companies that grant options using a stale or expired 409A expose employees to ordinary income tax plus a 20% penalty at each vest date. A proactive 409A refresh schedule, aligned to the annual grant cycle and the company’s financing calendar, is the most effective compliance strategy. Sofer Advisors provides 409A refreshes in 1-3 weeks at lower cost than initial engagements, building on prior work to efficiently maintain compliant option pricing for every grant.

What Should You Do Next?

If your last 409A valuation is approaching its 12-month anniversary, or if your company has closed a financing round or experienced a material event since the last measurement date, it is time to initiate a refresh. Options granted without a current 409A create tax exposure for your employees and legal exposure for your company. David Hern CPA ABV ASA, founder of Sofer Advisors, and 14 W2 valuation professionals manage 409A compliance programs for companies at every stage. Schedule your free consultation and put a defensible refresh process in place today and discover The Sofer Difference.

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About the Author

David Hern CPA ABV ASA is the founder of Sofer Advisors and a nationally recognized business valuation expert with 15+ years of experience. He holds dual credentials as an Accredited in Business Valuation (ABV) from the AICPA and Accredited Senior Appraiser (ASA) from the American Society of Appraisers – certifications recognized by the IRS, SEC, and FINRA. A Georgia Tech Scheller College MBA graduate and former Director of Valuation at Alvarez & Marsal, David leads a team of 14 W2 valuation professionals serving clients in all 50 states.

This content is for informational purposes only and does not constitute professional valuation advice. Business valuation conclusions depend on specific facts and circumstances. Contact Sofer Advisors for guidance regarding your specific situation.