Sell when company stock vests or wait 1 year?

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scorcher31
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Sell when company stock vests or wait 1 year?

Post by scorcher31 » Sun Jun 28, 2020 11:50 am

My spouse has started getting company stock as part of a yearly bonus which vests 25% per year after it is awarded. The company is a large company, although not one of the big tech companies, and nothing I would have interest in buying. Bonus was about 20k this year and I'm guessing will be similar yearly but who knows.

The first 25% will vest in 2021 and then so on. Does it make sense to wait until 2022 (1 year from vesting date) so that any gains would be considered long term capital gains instead of short term gains or would you sell as soon as it vests? If there was a loss when it vests I would probably just immediately sell and do tax loss harvesting but wanted to get your thoughts.

sport
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Re: Sell when company stock vests or wait 1 year?

Post by sport » Sun Jun 28, 2020 11:55 am

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Last edited by sport on Sun Jun 28, 2020 12:12 pm, edited 1 time in total.

sailaway
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Re: Sell when company stock vests or wait 1 year?

Post by sailaway » Sun Jun 28, 2020 11:58 am

You pay ordinary income tax on the vest price, no matter when you sell.

Sell immediately and diversify.

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scorcher31
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Re: Sell when company stock vests or wait 1 year?

Post by scorcher31 » Sun Jun 28, 2020 12:04 pm

sailaway wrote:
Sun Jun 28, 2020 11:58 am
You pay ordinary income tax on the vest price, no matter when you sell.

Sell immediately and diversify.
This is why I love bogleheads, I diddn't realized that. I just want to confirm. So even though they awarded the equivalent of $20k of shares in 2020 and they are now worth $21k but have not vested yet. Say say magically all of a sudden they are 100% vested tomorrow, the tax would be $21k ordinary income not 20k ordinary income and $1k capital gains?

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Re: Sell when company stock vests or wait 1 year?

Post by sean.mcgrath » Sun Jun 28, 2020 12:08 pm

scorcher31 wrote:
Sun Jun 28, 2020 12:04 pm
sailaway wrote:
Sun Jun 28, 2020 11:58 am
You pay ordinary income tax on the vest price, no matter when you sell.

Sell immediately and diversify.
This is why I love bogleheads, I diddn't realized that. I just want to confirm. So even though they awarded the equivalent of $20k of shares in 2020 and they are now worth $21k but have not vested yet. Say say magically all of a sudden they are 100% vested tomorrow, the tax would be $21k ordinary income not 20k ordinary income and $1k capital gains?
+1

Typically, some of them were sold at grant to cover taxes and they are treated as ordinary income. I believe it's required in the US.
Last edited by sean.mcgrath on Sun Jun 28, 2020 12:10 pm, edited 1 time in total.

KyleAAA
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Re: Sell when company stock vests or wait 1 year?

Post by KyleAAA » Sun Jun 28, 2020 12:09 pm

There is no tax advantage to waiting for RSUs. The value of the stock on the day it vests is taxed as regular income no matter what you do. Your cost basis is the value at vest, not value at grant.

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Re: Sell when company stock vests or wait 1 year?

Post by KyleAAA » Sun Jun 28, 2020 12:10 pm

scorcher31 wrote:
Sun Jun 28, 2020 12:04 pm
sailaway wrote:
Sun Jun 28, 2020 11:58 am
You pay ordinary income tax on the vest price, no matter when you sell.

Sell immediately and diversify.
This is why I love bogleheads, I diddn't realized that. I just want to confirm. So even though they awarded the equivalent of $20k of shares in 2020 and they are now worth $21k but have not vested yet. Say say magically all of a sudden they are 100% vested tomorrow, the tax would be $21k ordinary income not 20k ordinary income and $1k capital gains?
Correct. The grant price is irrelevant. It is income the day it vests.

novemberrain
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Re: Sell when company stock vests or wait 1 year?

Post by novemberrain » Sun Jun 28, 2020 12:11 pm

If it is RSU, it will show up as income no matter when you sell. So if you got say 100 stocks at $100 each, then it will show up as $10000 on your W2. Most companies actually withhold RSUs for taxes even before they give it to you. So if company decides to withhold at say 40% tax bracket, then you will actually receive 60 shares at $100 for a total of $6000

Anything you do after that will be treated as short or long term gains/losses. You could hold and sell after a year and depending on how the stock has been doing in that one year, it will either be long term cap gains or cap losses. Losses can be harvested only for some $3000 per year I believe.

So in summary, unless you are in some lockup period (IPO or blackout period before/after quarterly results), you may want to sell and diversify.

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rob
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Re: Sell when company stock vests or wait 1 year?

Post by rob » Sun Jun 28, 2020 12:17 pm

RSU's are a no brainer... same decision as would you take $x and buy company stock... If no then sell immediately.
Options (Especially ISO vs NSO) are a different animal and while out of flavor now days, should be investigated more carefully.
| Rob | Its a dangerous business going out your front door. - J.R.R.Tolkien

sailaway
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Re: Sell when company stock vests or wait 1 year?

Post by sailaway » Sun Jun 28, 2020 12:45 pm

scorcher31 wrote:
Sun Jun 28, 2020 12:04 pm
sailaway wrote:
Sun Jun 28, 2020 11:58 am
You pay ordinary income tax on the vest price, no matter when you sell.

Sell immediately and diversify.
This is why I love bogleheads, I diddn't realized that. I just want to confirm. So even though they awarded the equivalent of $20k of shares in 2020 and they are now worth $21k but have not vested yet. Say say magically all of a sudden they are 100% vested tomorrow, the tax would be $21k ordinary income not 20k ordinary income and $1k capital gains?
Correct.

ESPP has different rules, which is one reason this is confusing, but RSUs are income paid on the day they vest. For one thing, they simply aren't yours until they vest, so the grant price is irrelevant. Otherwise, when we quit, we would get to claim unvested RSUs as a loss.

You will notice that vested RSUs are included on your W-2.

New Providence
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Re: Sell when company stock vests or wait 1 year?

Post by New Providence » Sun Jun 28, 2020 2:14 pm

sailaway wrote:
Sun Jun 28, 2020 11:58 am


Sell immediately and diversify.
Keeping it is a form of diversification. I kept my shares and made 30% return when my co. was acquired.

epargnant
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Re: Sell when company stock vests or wait 1 year?

Post by epargnant » Sun Jun 28, 2020 2:37 pm

In terms of taxes:
The date the RSUs were granted does not matter.

The share price of RSUs at granting, or any time before vest, does not matter.



It’s just a bonus- cash it out & diversify.

It doesn’t count as diversifying if you hang on to them & get lucky selling later. That’s a great anecdote though- congrats, New Providence!

sco
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Re: Sell when company stock vests or wait 1 year?

Post by sco » Mon Jun 29, 2020 8:43 am

New Providence wrote:
Sun Jun 28, 2020 2:14 pm
sailaway wrote:
Sun Jun 28, 2020 11:58 am


Sell immediately and diversify.
Keeping it is a form of diversification. I kept my shares and made 30% return when my co. was acquired.
Keeping large amounts of money in one individual stock is not diversification, even if it happens to work out sometimes.

bberris
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Re: Sell when company stock vests or wait 1 year?

Post by bberris » Mon Jun 29, 2020 9:22 am

New Providence wrote:
Sun Jun 28, 2020 2:14 pm
sailaway wrote:
Sun Jun 28, 2020 11:58 am


Sell immediately and diversify.
Keeping it is a form of diversification. I kept my shares and made 30% return when my co. was acquired.
Congratulations! You gambled and won. But you did not diversify, unless your other investments were in a single, other, stock.

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Re: Sell when company stock vests or wait 1 year?

Post by Jack FFR1846 » Mon Jun 29, 2020 9:53 am

bberris wrote:
Mon Jun 29, 2020 9:22 am
New Providence wrote:
Sun Jun 28, 2020 2:14 pm
sailaway wrote:
Sun Jun 28, 2020 11:58 am


Sell immediately and diversify.
Keeping it is a form of diversification. I kept my shares and made 30% return when my co. was acquired.
Congratulations! You gambled and won. But you did not diversify, unless your other investments were in a single, other, stock.
I know someone who gambled like that, but fortunately for them, this was back when companies granted options. Stock had been $140 ish for some time. Dropped like a rock in the 2000 telecom bubble burst (we sold lots to telecom). He and I had options at $13....the low point for the stock. Stock vested and sat at $38. I sold it all. Bought a new car, paid off my mortgage, bought my first HDTV. He held, saying it would go back up to $140. From that $38 (new high), it did nothing but drop. New flatline was $10. Friend held and eventually left the company 5 years later. Ended up with zip.

There is NO reason this can't happen to ANY company. That company is a tech co, close to Intel and in business since 1957.
Bogle: Smart Beta is stupid

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TomatoTomahto
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Re: Sell when company stock vests or wait 1 year?

Post by TomatoTomahto » Mon Jun 29, 2020 10:00 am

New Providence wrote:
Sun Jun 28, 2020 2:14 pm
sailaway wrote:
Sun Jun 28, 2020 11:58 am
Sell immediately and diversify.
Keeping it is a form of diversification. I kept my shares and made 30% return when my co. was acquired.
Confusing outcome with strategy. And, presumably your unvested shares also went up.

OP, if you would not buy the lower shares, don’t retain the shares.

We have received RSUs from many companies. On some of them it would have been good to keep the shares, others meh, in one it would have been disastrous (down to single digit price). Since the company also determines your overall compensation, it’s better not to be a pig and just sell. Typically, when a tranche vests, more grants will be made.
Okay, I get it; I won't be political or controversial. The Earth is flat.

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