Your RSUs are about to vest. Your company has been doing great. The awards are worth more than you expected when you got them 3 years ago.
Hold the shares and continue to accumulate stock in your company? Your income and a growing portion of your investment portfolio are increasingly linked to the success of one company. How do you know if you’re taking too much risk for your family?
Sell the shares immediately and redeploy the cash? This reduces your risk in one company and you’re not paying taxes again to sell the shares. Both good. But what’s your plan for the cash? The most common reason I hear for why people are holding onto their shares is they don’t know what to do with the proceeds if they sold them. Should I pay down the mortgage? Fund the 529? Pay cash for the house project? Invest into XYZ? Buy a second home? So many choices…. I’ll just figure it out later.
Give it a few months to see if the stock price goes up? You’re now speculating, not investing, and any gains will be taxed as ordinary income tax rates if you sell within 12 months. Remember, you’re already taxed once when the shares vest.
On the tax note, you may be realizing that your RSUs which vested in 2022 may be creating tax issues for you right now. Your company set an automatic withholding (22% for Federal Taxes) for this transaction but the income created by vested RSUs is lumped on top of your salary and cash bonus. It’s likely being taxed in the 32%-37% federal tax bracket, leaving you with a check to write to Uncle Sam in April. Did you factor that into your plan?
RSUs are a great benefit. The process of receiving this award requires very little involvement from the recipient. Don’t let that ease of use lull you into inaction. With some pre-planning, you can maximize this benefit for you and your family.