RSUs about to vest. However,

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Suveneel
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RSUs about to vest. However,

Post by Suveneel » Tue Feb 04, 2020 8:06 pm

I have RSUs that are about to vest in a few weeks. These have been awarded almost three years ago and had a three year limitation to vest.
Since the award, the value of the stock and the award has almost doubled. It is now worth twice what I was originally awarded.

I have gone through all the various posts in here and realize that a majority of folks advise immediate sale of the vested stock. I understand that selling on day 1 of vesting will have me pay taxes on the value of the vested stock on that day. I also see that most folks advise on investing where the returns might be higher. I think the stock and the company has room to grow.

Additionally this award funds are something I plan on using to fund my son's college for a year or two which is 4 yrs away.

So, should I leave the RSUs here to see where they go in 2-3 years before cashing out?
or
Would you experts suggest cashing out now?

Any pros and cons or tax implications either way?

Appreciate your suggestions.
Regards,

CppCoder
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Re: RSUs about to vest. However,

Post by CppCoder » Tue Feb 04, 2020 8:39 pm

Sell immediately. RSUs should be thought of as a delayed cash bonus with a variable payout. If someone handed you the same amount in cash today, would you turn around and buy your company's stock. It's not about finding an asset that pays higher returns, it's about risk management.

If you sell immediately, you'll have marginal gains/losses based on the time between vesting a sale. Either way, you pay income taxes on the amount of the RSUs at vesting, with your company presumably withholding some shares to pay the taxes. Once you hold the stock, it becomes a short term/long term capital gain/loss situation depending on how long you hold the stock until sale.

fabdog
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Re: RSUs about to vest. However,

Post by fabdog » Tue Feb 04, 2020 8:40 pm

When the RSU's vest you'll owe tax on the shares value. Many employers will sell a number of shares to cover the taxes (Federal, state, SS/Medicare) and the rest go into your account.

This will show up on your W2.

If you hold them greater than 1 year and the stock has gone up, you'll get cap gains treatment when you sell on the delta of sale price minus value on date of vesting

So there is no tax avoidance by not selling on day of vesting. If you think the shares have room to run that's up to you. Could work out great, could not...

Mike

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RootSki
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Re: RSUs about to vest. However,

Post by RootSki » Tue Feb 04, 2020 8:48 pm

I hold the shares I get from my RSU for at least a year. I hate paying short term gains tax rates. So far I’ve been lucky and it’s worked out.

sailaway
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Re: RSUs about to vest. However,

Post by sailaway » Tue Feb 04, 2020 8:48 pm

The usual advice is to sell immediately in order to diversify.

If this is your son's college fund in just a few years, you should consider selling and putting into something safe.

Are you willing to gamble your son's college fund in the same place that your salary comes from?

If you had received a cash bonus, would you go out and buy this single stock?

RSUs are taxes as income when they vest. The vest price becomes the basis for determining taxes and the best date becomes the date for determining short vs long term gains. If you sell immediately, that will be minimal, as you haven't given the market time to move much.

Afty
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Re: RSUs about to vest. However,

Post by Afty » Tue Feb 04, 2020 8:52 pm

Suveneel wrote:
Tue Feb 04, 2020 8:06 pm
I understand that selling on day 1 of vesting will have me pay taxes on the value of the vested stock on that day.
I wanted to clarify this. You will owe income tax on the value of the vested stock whether or not you sell it. If you sell it, you will also owe capital gains tax on the difference between the selling price and the vesting price. If you sell it immediately, then this capital gain should be zero.

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Suveneel
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Re: RSUs about to vest. However,

Post by Suveneel » Tue Feb 04, 2020 8:56 pm

Though the answer to the question, if I would I buy the company stock with the cash is yes(my highest return on investment in my little portfolio outside of the RSUs @ 62%), I will sell the RSUs and pay taxes and maybe move whatever I net into the 529 plan.


Thanks folks for your recommendations.

random_walker_77
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Re: RSUs about to vest. However,

Post by random_walker_77 » Tue Feb 04, 2020 9:01 pm

RSU vesting is ordinary income and equivalent to a cash bonus. There's no difference tax-wise in these 3 options:
1) sell the RSUs, setting aside the taxes owed and putting the cash in your account
2) everything in 1, then immediately buying the stock back at the same price
3) keeping the RSUs

So the question is, if the company gave you the equivalent in cash, would you buy the company stock? Or is the suggestion of receiving the funds in the form of shares going to sway you into keeping it in the form of stock as opposed to cash?

Most would recommend putting the cash into a diversified fund (or failing that, betting it all on a stock other than your employer :twisted:)

123
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Re: RSUs about to vest. However,

Post by 123 » Tue Feb 04, 2020 9:12 pm

If you were a true believer in your company (and maybe not a boglehead) your portfolio would already include significant employer stock. That said sell the RSUs as soon as they vest. RSUs are compensation for your work, cash them out while you can still get full dollar for them.
The closest helping hand is at the end of your own arm.

60B4E24B
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Re: RSUs about to vest. However,

Post by 60B4E24B » Tue Feb 04, 2020 9:13 pm

RootSki wrote:
Tue Feb 04, 2020 8:48 pm
I hold the shares I get from my RSU for at least a year. I hate paying short term gains tax rates. So far I’ve been lucky and it’s worked out.
Other posters have pointed this out, but you're not optimizing what you think your optimizing here. Here's an example:

You vest 100 RSUs at $10/sh. The company sells 25sh of them to cover taxes. In addition to your normal salary, your W2 will reflect $1000 in ordinary income, with $250 in additional federal withholding.

You have three options after vesting:

1. Sell immediately for $10. You have no capital gains or losses here, so no additional tax burden.
2. Hold until you get around to selling, and now the stock is $11/sh. You net $825 from the sale, with a cost basis of $750, or a short term capital gain of $75. You'll pay your marginal rate on this come next tax season.
3. Hold until day 366, with the stock still at $11/sh. You net $825 from the sale, with a cost basis of $750, or a long term capital gain of $75. You'll pay your LTCG rate come next tax season.

In all scenarios, you'll get a 1099-B and need to fill out a Schedule D with your return.

Put another way: the vesting of an RSU is identical from a tax perspective to the following: Your company gives you a bonus of $X, and forces you to immediately buy $X*0.75 worth of stock.

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1789
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Re: RSUs about to vest. However,

Post by 1789 » Tue Feb 04, 2020 9:17 pm

It doesn't matter if its doubled or not. VTSAX returned 50% in last 3 years. Why would you like to take that kind of risk? I would sell it and i will sell mine at May 2nd, right after it vests.
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)

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Stinky
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Re: RSUs about to vest. However,

Post by Stinky » Tue Feb 04, 2020 9:49 pm

Suveneel wrote:
Tue Feb 04, 2020 8:06 pm

I have gone through all the various posts in here and realize that a majority of folks advise immediate sale of the vested stock. I understand that selling on day 1 of vesting will have me pay taxes on the value of the vested stock on that day. I also see that most folks advise on investing where the returns might be higher.
Yes, the majority of folks on this Board advise that you sell the RSU stock immediately.

No, the folks here don’t suggest selling because they believe they returns might be higher elsewhere. Rather, they suggest selling to diversify holdings. By selling, you move away from the “single stock” risk that you would run by keeping the vested stock over the long term.
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KyleAAA
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Re: RSUs about to vest. However,

Post by KyleAAA » Tue Feb 04, 2020 10:39 pm

Always sell immediately. This is one of the few rules for which there really are no exceptions.

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mrspock
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Re: RSUs about to vest. However,

Post by mrspock » Tue Feb 04, 2020 11:38 pm

RootSki wrote:
Tue Feb 04, 2020 8:48 pm
I hold the shares I get from my RSU for at least a year. I hate paying short term gains tax rates. So far I’ve been lucky and it’s worked out.
This isn’t doing what you think it is. Unrealized gain on vest day is exactly $0, as such no capital gains taxes are due, the only taxes due are income taxes on the value of the RSUs on the day of vesting.

You can hold for 500 years and that number isn’t going to change a dime.

As for selling or not? If you are young (20s/30s), and think you are on a rocket ship (next Google, Tesla, FB etc), go ahead and hold. I held... 5 folded money. Better to be dumb & lucky than smart :P . I don’t hold anymore though, I sell every dime since the company has a mature market cap.

surfstar
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Re: RSUs about to vest. However,

Post by surfstar » Wed Feb 05, 2020 12:30 am

Ask your son if he'd like 1/2 of college paid for or to "let it ride" and maybe get to go to a private school for all 4 years! Of course he could end up at a community college if it doesn't work out. :twisted:

Topic Author
Suveneel
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Re: RSUs about to vest. However,

Post by Suveneel » Wed Feb 05, 2020 6:31 pm

surfstar wrote:
Wed Feb 05, 2020 12:30 am
Ask your son if he'd like 1/2 of college paid for or to "let it ride" and maybe get to go to a private school for all 4 years! Of course he could end up at a community college if it doesn't work out. :twisted:
Unfortunately If I give him that choice, I might not like the result. For now, selling on day 1 or 2.

Ocean77
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Re: RSUs about to vest. However,

Post by Ocean77 » Wed Feb 05, 2020 6:39 pm

The best way to think of RSU: It's a taxable cash bonus, reported on your W2 like any other income. The only small difference to an actual cash bonus: Instead of depositing the cash into your account, your employer offers to purchase company stock on your behalf, at the market price and for the entire amount of your bonus. In order not to avail yourself of this "convenience" you need to opt out. Opting out means selling the stock right away.

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Re: RSUs about to vest. However,

Post by sergeant » Wed Feb 05, 2020 6:43 pm

Suveneel wrote:
Wed Feb 05, 2020 6:31 pm
surfstar wrote:
Wed Feb 05, 2020 12:30 am
Ask your son if he'd like 1/2 of college paid for or to "let it ride" and maybe get to go to a private school for all 4 years! Of course he could end up at a community college if it doesn't work out. :twisted:
Unfortunately If I give him that choice, I might not like the result. For now, selling on day 1 or 2.
Good for you. That is the smart move.
AA- 20+ Years of Expenses Fixed Income/The remainder in Equities.

almostretired1965
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Re: RSUs about to vest. However,

Post by almostretired1965 » Wed Feb 05, 2020 6:53 pm

Psychologically, it can be difficult to sell when all you see is up, up, and up. At the company I joined a little over a year ago, selling would have been the wrong move, in hindsight, at any point over the last 5 years. One of my colleagues, who has been with the firm for over 10 years has never sold any shares he has received via ESPP or RSU. It has worked out spectacularly well for him.

As for myself, I always sell fairly soon after I am able to. Just hedging my bets. My career is already riding on the success of the firm, not to mention all the unvested RSUs in the pipeline. It is just prudent to take some gains off the table as it were. The folks that worked at Enron thought they had a sure thing too.

A

NewMoneyMustBeSmart
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Re: RSUs about to vest. However,

Post by NewMoneyMustBeSmart » Wed Feb 05, 2020 9:38 pm

Suveneel wrote:
Tue Feb 04, 2020 8:06 pm
I understand that selling on day 1 of vesting will have me pay taxes on the value of the vested stock on that day.

...

So, should I leave the RSUs here to see where they go in 2-3 years before cashing out?
or
Would you experts suggest cashing out now?
You seem to be making what I think is a bad and wrong assumption.

I understand the IRS deems the RSU value taxable at vest. So you will be implicitly assesed tax on the vesting date. Some places sell X% of your RSUs at vest to pay the taxes.

As for whether you buy or hold; that's up to you. The basis will reset to the value at vest, so your capital gains is henceforth (as you pay w2 taxes on the value at vest).

Most people advise selling immediately on concentrated wealth or equity.

I have held 80% of my 1M+ stock options since IPO and I'm up substantially, at the risk of "losing it all." Some people advise selling half immediately and then DCA out.

Only you can decide what your risk profile and beliefs are. Conventional wisdom is sell and diversify into 3 fund.
-- | Few are those who see with their own eyes and feel with their own hearts - Einstein

MotoTrojan
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Re: RSUs about to vest. However,

Post by MotoTrojan » Wed Feb 05, 2020 10:10 pm

RootSki wrote:
Tue Feb 04, 2020 8:48 pm
I hold the shares I get from my RSU for at least a year. I hate paying short term gains tax rates. So far I’ve been lucky and it’s worked out.
All you are doing is deciding to take your cash bonus and use it to buy company stock. There is no tax-advantage to holding them a year, unless the price continues to go up.

OP, unless you wanted to buy the stock anyways, there is no advantage to holding it any longer than you have to. Enjoy the cash bonus.

DoubleClick
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Re: RSUs about to vest. However,

Post by DoubleClick » Wed Feb 05, 2020 10:45 pm

Suveneel wrote:
Tue Feb 04, 2020 8:06 pm
I understand that selling on day 1 of vesting will have me pay taxes on the value of the vested stock on that day.
As others have pointed out: you will pay taxes on the value of the vested stock at vesting regardless of whether you sell or not. This is important to understand.
Suveneel wrote:
Tue Feb 04, 2020 8:06 pm
I also see that most folks advise on investing where the returns might be higher.
Remember that there is no free lunch. If returns may be higher, so is the risk. i.e., losses may be higher too.

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