Strategy for Selling Company RSUs

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teamDE
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Strategy for Selling Company RSUs

Post by teamDE » Fri Feb 15, 2019 9:37 am

I'm confusing myself a bit here and am sure you all can help. My wife gets RSUs from her company and they vest every month or two. They collect in a taxable account at Fidelity. Our goal is to trade them to ITOT to reduce our exposure to that company and diversify.

So I believe i'd rank our goals as:
1. Trade to diversify
2. Capture gains if/when possible to make money
3. Be smart about capital gains and taxes

So today we just got out of a trade blackout period and her company stock is high. We look through the lots. They're all Short Term, but some about to move to Long Term. Some have higher cost basis, some lower. All are below the current stock value.

Here's what i'm thinking:
1. I don't want to sell anything that's close to transitioning to LTCGs because we'd rather sell them then.
2. I don't want sell anything with too low of a cost basis because we'll have a lot of STCGs. I'd rather sell big gainers as LTCGs
3. That leaves recent vestments with higher cost basis as the candidates for sale. This would minimize the STCGs (but also the overall gains)

Does that make sense?

Jack FFR1846
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Re: Strategy for Selling Company RSUs

Post by Jack FFR1846 » Fri Feb 15, 2019 9:42 am

I have RSUs vesting today and I do the same exact thing every time some vest. In advance, I set the actions to "with hold shares at vest" which sells instantly on vesting, with holding some random amount to pay taxes. It takes maybe 4 business days for the sale to settle, at which time, I ACH the money to my checking account. Then I do whatever I had planned to do with the money. For this particular one, I'm paying tuitions and maybe pre-paying my 2nd quarter property tax which will be due May 1st, just to get it out of the way.

I NEVER, EVER hold the stock EVER.
Bogle: Smart Beta is stupid

software
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Re: Strategy for Selling Company RSUs

Post by software » Fri Feb 15, 2019 9:46 am

Jack FFR1846 wrote:
Fri Feb 15, 2019 9:42 am
I have RSUs vesting today and I do the same exact thing every time some vest. In advance, I set the actions to "with hold shares at vest" which sells instantly on vesting, with holding some random amount to pay taxes. It takes maybe 4 business days for the sale to settle, at which time, I ACH the money to my checking account. Then I do whatever I had planned to do with the money. For this particular one, I'm paying tuitions and maybe pre-paying my 2nd quarter property tax which will be due May 1st, just to get it out of the way.

I NEVER, EVER hold the stock EVER.
Same, I am already overexposed to my companies financial health enough via TSM and my salary. I certainly don’t want any additional exposure via RSUs. I always set mine up to auto sell at vest, so I can immediately diversify.

Topic Author
teamDE
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Re: Strategy for Selling Company RSUs

Post by teamDE » Fri Feb 15, 2019 9:47 am

I wonder if she has the option to do that. We'll look into it. She still likes the idea of keeping her stocks so we've settled on a 50/50 split for the time being.

It does seem like the trading window is often closed, we have a hard time finding an opening and getting them sold right away.

dbr
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Re: Strategy for Selling Company RSUs

Post by dbr » Fri Feb 15, 2019 9:58 am

As a generalization you don't want to hold company stock ever, so the first part of your strategy is to divest everything as soon as possible.

But the blackout situation can create a tax dilemma where the stock may have gained value since it vested and you are at the cusp of taking LT vs ST gains. I wonder though how it is possible for blackout periods to be so long and so frequent that you can't liquidate your shares in fairly short order. In any case another generalization is that the tax tail should not wag the investment dog, and you should in general just pay up. I don't know of a good answer for a borderline case where waiting, say a month, gets you from ST to LT but then you are blacked out for, say six months, and are exposed to too much risk for too long. Again, how can it be that you are blacked out almost all the time? Also, no stock just goes up. Some of those lots must surely be at a loss at any one time and you can offset gains with losses.

Jack FFR1846
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Re: Strategy for Selling Company RSUs

Post by Jack FFR1846 » Fri Feb 15, 2019 10:00 am

If she likes keeping company stocks, sell the RSUs. Then buy on the open market. This now results in the short/long time becoming 1 year. My understanding (I may be wrong) is that for RSU and ESPP, long is 2 years. She would also have control of her own stocks and even if there is a company blackout period, the company does not see what's in her own brokerage accounts elsewhere.
Bogle: Smart Beta is stupid

software
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Re: Strategy for Selling Company RSUs

Post by software » Fri Feb 15, 2019 10:14 am

Jack FFR1846 wrote:
Fri Feb 15, 2019 10:00 am
If she likes keeping company stocks, sell the RSUs. Then buy on the open market. This now results in the short/long time becoming 1 year. My understanding (I may be wrong) is that for RSU and ESPP, long is 2 years. She would also have control of her own stocks and even if there is a company blackout period, the company does not see what's in her own brokerage accounts elsewhere.
My understanding is that there is no difference between RSUs and regularly purchased stock from a tax perspective or otherwise (after they vest of course).

Also, my past experience is that trading windows apply to ALL company stock, not just stock held within a company account. Just because the company cannot see it doesn’t make insider trading any less illegal.

Topic Author
teamDE
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Re: Strategy for Selling Company RSUs

Post by teamDE » Fri Feb 15, 2019 11:02 am

Not letting the tax tail wag the investment dog is, i think, the crux of my issue. Basically my strategy thus far is to hold off on the lowest cost basis with highest potential gains until they're in the long term window. And sell anything with a higher cost basis with gains averaging around 0 to smallish now for diversification's sake. The pro to this is that i'll be paying most of my gains as LTCG (assuming the stock doesn't tank), but the con is that i'm not realizing all the gains i could be today. I could sell right now and have $20k+ in gains. Does that make sense? I guess ultimately i'm betting on the stock holding its value long enough to get us into LTCG territory. This feels unboglehead-like...

dbr
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Re: Strategy for Selling Company RSUs

Post by dbr » Fri Feb 15, 2019 11:15 am

DanEmmy wrote:
Fri Feb 15, 2019 11:02 am
Not letting the tax tail wag the investment dog is, i think, the crux of my issue. Basically my strategy thus far is to hold off on the lowest cost basis with highest potential gains until they're in the long term window. And sell anything with a higher cost basis with gains averaging around 0 to smallish now for diversification's sake. The pro to this is that i'll be paying most of my gains as LTCG (assuming the stock doesn't tank), but the con is that i'm not realizing all the gains i could be today. I could sell right now and have $20k+ in gains. Does that make sense? I guess ultimately i'm betting on the stock holding its value long enough to get us into LTCG territory. This feels unboglehead-like...
You might also recognize that having gains at all puts you on the right side of the eight ball. You should be glad your holdings are at a gain instead of a loss. Everything is relative to the baseline that you should not be holding this stock at all in the first place.

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Re: Strategy for Selling Company RSUs

Post by Misenplace » Fri Feb 15, 2019 11:17 am

If you are close to LTGC for some lots, I would hold out for them. But avoid that in the future.

A standing order to sell upon vesting may not be subject to blackout dates. It’s how I’ve seen a lot of executives get around it.

Be warned when you sell lots at a loss that you don’t have any vesting lots within 31 days because that will generate a wash sale unless you also sell the newly vesting lot. A standing order to sell on vesting is often a small loss due to the commission charge. Not that a wash sale is necessarily a bad thing, just something to know.

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teamDE
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Re: Strategy for Selling Company RSUs

Post by teamDE » Fri Feb 15, 2019 11:22 am

Misenplace wrote:
Fri Feb 15, 2019 11:17 am
If you are close to LTGC for some lots, I would hold out for them. But avoid that in the future.

A standing order to sell upon vesting may not be subject to blackout dates. It’s how I’ve seen a lot of executives get around it.

Be warned when you sell lots at a loss that you don’t have any vesting lots within 31 days because that will generate a wash sale unless you also sell the newly vesting lot. A standing order to sell on vesting is often a small loss due to the commission charge. Not that a wash sale is necessarily a bad thing, just something to know.
Ah ha! We had a few wash sales on the 1099B this year and i couldn't figure out why. I was actually going to call Fidelity to ask about it this weekend. That might be it. I'll do some homework on this, thanks.

international001
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Re: Strategy for Selling Company RSUs

Post by international001 » Fri Feb 15, 2019 11:28 am

This is my strategy as well. I don't even try to look at higher cost basis, I plan to sell everything when they reach LTG. AS long as it's not a big part of your portfolio, it's a worthy risk.

MikeG62
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Re: Strategy for Selling Company RSUs

Post by MikeG62 » Fri Feb 15, 2019 1:44 pm

I am not necessarily in the camp of never, ever hold shares of stock of your employer. I get the risk (too much of your financial life tied to one company), but I think it depends on the company.

I was a senior executive in a public company for 20 years (received stock options, stock and restricted stock). I will say that generally the people who did the best on the equity grants were the folks who held them the longest. This was not me. I sold from time to time, but not immediately on vesting. I was a section 16 officer so there were reporting obligations for me and I had to get CEO approval to sell. That was never a pleasant conversation (so Mike, you don't believe in the long-term success of the company...). I had some oversight of the stock grant records, and as I said before, those who did the best held the longest (generally speaking).

Of course there are the Enron and Worldcom stories (as well as the banks during the financial crisis). However, there are the Apples, and Amazons's and Netflix, Google's, etc...too. So it's hard to generalize.

I used the lattice-binomial (or Black Scholes Merton) valuation on the date of grant as a guide as to when to exercise options. Maybe not perfect, but figured if people much smarter than me determined that was the option value on the grant date, who am I to ignore that. Plus, did not want too much of my net worth tied to my company stock.

Bottom line is IMHO there is no one right answer.
Real Knowledge Comes Only From Experience

software
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Re: Strategy for Selling Company RSUs

Post by software » Fri Feb 15, 2019 2:06 pm

I think it is actually quite easy to generalize. All you need to do is answer one question. “If I had extra money to invest, would I buy stock of XYZ with it?”

If the answer is yes, you should be holding onto your RSUs.

If the answer is no, you should sell immediately and buy whatever it is you would be investing in with your own money.

international001
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Re: Strategy for Selling Company RSUs

Post by international001 » Wed Feb 20, 2019 10:54 am

My question is.. would I buy them if they gave you an extra bonus of X%? (X% is tax advantages for holding them LT). My answer would be yes if it's a small amount. It will depend on the (preceived) stability of the company and your total portfolio. For me, 20% of my salary (2 years * 10% salary), it's not much risk.

bradpevans
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Re: Strategy for Selling Company RSUs

Post by bradpevans » Wed Feb 20, 2019 11:00 am

software wrote:
Fri Feb 15, 2019 2:06 pm
I think it is actually quite easy to generalize. All you need to do is answer one question. “If I had extra money to invest, would I buy stock of XYZ with it?”

If the answer is yes, you should be holding onto your RSUs.

If the answer is no, you should sell immediately and buy whatever it is you would be investing in with your own money.
^^ this

At least at my company, the taxes are withheld immediately upon vesting. Sometimes you end up "losing" $4.95 when you sell immediately, because of the $4.95 trade cost.

I look at like a bonus check, with taxes taking out, but payed in shares.
Sell immediately if you want that bonus check paid in dollars.

Jebediah
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Re: Strategy for Selling Company RSUs

Post by Jebediah » Wed Feb 20, 2019 11:58 am

In this particular case, and if the dollar amounts aren't just noise, I think it's reasonable to let the tax tail wag the dog. The difference between ST and LT gains ought to be a large, double-digit guaranteed return. Probably worth it to bear one year of risk in a single stock.

At the very least, there is some threshhold where the guaranteed return is worth it to take the risk. You don't want to bury your head in the sand and declare that under no circumstances will you wait out the 1 year.

timshel
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Re: Strategy for Selling Company RSUs

Post by timshel » Wed Feb 20, 2019 12:10 pm

I guess I take a bit different approach to RSUs.

I don't do anything with them until I have held them for a year - this makes them eligible for LTCG. I then make annual gifts of specific share lots (up to $15K limits to my kids, their spouses and grandchildren). I emphasize shares with highest gain for this purpose, and generally continue to hold lots with potential for TLH. The kids appreciate it - has allowed them to pay off school loans and jump start their investments. I have sold some shares too - used TLH to help fund a post-flood remodel a couple years ago.

This approach works for me because the RSUs are not a significant part of assets, and I don't even consider them as part of my retirement planning process. To the extent they are a factor, they rank below 2 pensions, 401K, deferred comp and Social Security. For me, they are more around maintaining flexibility.

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