How to sell restricted stock
What's the Best Time to Sell Restricted Stock Units (RSUs)?
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it's brian preston the money guy
uh this next one is uh this is from a
friend of the show brian this is from
dax
okay uh and this is what dax said
employee stock plan
is there an optimal way to sell the
rsu's once they vest
hear the assumptions multiple vesting
windows all steps of financial order of
operations followed
38 savings rate without match healthy
base income so dax sounds like he's
doing
all the things it's supposed to be
saying you know is there really an
optimal way that i should think about
selling rsu's well
first i think you need to know the
unique thing about restricted stock
units so for those of you don't know
a lot of folks who work for publicly
traded companies part of their
compensation gets paid in terms of
employer incentives where they might say
hey
i'm going to give you a certain number
of shares of stock as part of your
compensation
but you're not going to get it today
instead we're going to have it vest over
the next three years the third or third
a third or whatever the case may be
well what's great is when that happens
when you get that grant
there's no taxability there's nothing
you know doesn't actually cost you money
in taxes
what does happen is on the day that
those rsus vest
that's when the taxable event happens so
if the stock ends up going up in value
it's great you'll have more value in
invests
but when invest you have to pay income
tax on that or oftentimes there's some
sort of automatic structure where the
shares are withheld
well the beautiful thing about that
being the taxation event day
is that if you were to make the decision
to immediately sell those rsu's at that
point
there are no additional tax consequences
so when you're talking about
optimization from divesting your
exposure to your employer
the best day most often to sell rsu's is
the day that it vests because there are
no additional tax consequences
if then you opt to hold the rsus and not
sell them
if you sell them at any point in time in
the first year after they vest
you're going to pay ordinary income tax
on any gains that you've made if you
wait till after a year
you're going to pay long-term capital
gains rates now if you have
a lot of rsu's outstanding or maybe you
have options or maybe you have espps
and it turns out that you have a lot of
exposure to your employer
you have a lot of concentrated stock
exposure there and we say a lot is
more than five to ten percent of your
total portfolio
it may be a great strategy not only to
sell on the day those rsu's vest
because you minimize your tax
consequences but also because you begin
to decrease the exposure
and you start to get off of that
incentive treadmill with your current
employer
dax i'll tell you this is one of those
things i think that makes us unique
in the financial planning communities we
actually work with clients in all kind
of
fields i mean biotech technology
a lot of places that are dealing with
these type of decisions
and we can give you general advice like
bo did but it's it's just that it's
general it's not customized to you and
these situations
are complex um there's lots of things
going on
no two people are the same with their
different financial life experiences and
where their goals are and what will
actually reach success
so this is one of those things where
maybe the relationship needs to graduate
to the next level and that's why you
know this is part of the abundance
cycles we give you tons of free advice
love on you so you can learn
apply grow but there will come a time
where you'll get to
um complexity that you'll want to have a
co-pilot and that's what we're hoping
the abundance cycle you'll pay it
forward
and consider you know taking the
relationship to the next level and
hiring a financial advisor
