Handling Stock Grants

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imstillstanding
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Handling Stock Grants

Post by imstillstanding » Tue May 07, 2019 12:56 pm

My question is regarding what people do with stock grants from their employer- do you leave them with servicer, transfer them to your control and/or sell any portion of them? My husband gets yearly stock grants that vest over a three year period as part of his compensation. The shares are granted through a third party (AST) and it has been his practice to have these transferred into our brokerage account (which is currently with Morgan Stanley), sell a portion to pay the required withholding taxes and to diversify. I think his thinking is that he is already so invested in his company and it's already our largest holding by a lot, so selling a portion makes sense.

We live in MA and I have slowly convinced him to transfer our money to Fidelity from Morgan Stanley in order to save $$. His father died 15 years ago and his inherited IRA ended up with a small town family friend that works at Morgan Stanley and he has felt obligated to remain with him (this advisor is 70 now so I am thinking this guilt has to ease up soon! ). Although his inherited IRA is still there, we have slowly opened brokerage, 529s, backdoor ROTHs at Fidelity with the hope to transfer our cash management and inherited IRA there in the near future. I can't remember what MS charges to pull the stocks and then sell a portion, but I remember it being more than I would have thought and I am sure more than Fidelity would charge. I would like to start having my husband pull this stock into our Fidelity Brokerage so that he can see that we can do this ourselves without the help of our advisor's assistant at MS. My question is: is the way we are doing this customary? Does it make sense that we move the stock from AST? Does it make sense that we sell some (both as I have not wanted to write a check for company stock and also to diversify)? And finally, has anyone ever done a stock pull like this at Fidelity? Any advise or experience welcome!

KyleAAA
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Re: Handling Stock Grants

Post by KyleAAA » Tue May 07, 2019 1:03 pm

I always sell all stock at vest, set aside anything I need to make quarterly estimated payments to the IRS, and invest in my regular asset allocation. They are deposited in Fidelity, which is where I have my taxable brokerage anyway. I do know a few people who held onto their company stock at various employers and ended up with low 7 figures in stock after a few years, but that's far too much risk for me.

HawkeyePierce
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Re: Handling Stock Grants

Post by HawkeyePierce » Tue May 07, 2019 1:08 pm

I always sell immediately. My grants vest quarterly and my employer uses Schwab. In the four years I've worked here our stock has gone down 50% and up 300%. Too much risk for me to hold on to it.

Usually I just move all the proceeds into a muni money fund while I figure out what to do.
Last edited by HawkeyePierce on Tue May 07, 2019 1:35 pm, edited 1 time in total.

Jack FFR1846
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Re: Handling Stock Grants

Post by Jack FFR1846 » Tue May 07, 2019 1:13 pm

Sell at vest. I get RSUs vesting quarterly and my company uses eTrade. I go in and set what to do on vest way ahead of time. I've already got the next 2 years in RSUs and ESPPs set to sell at vest, witholding shares for taxes. So essentially, they all sell and some have the cash go to the feds and the mass DOR and I get what's left. I hold zero company shares.
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MikeG62
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Re: Handling Stock Grants

Post by MikeG62 » Tue May 07, 2019 1:36 pm

I am not in the camp of never, ever hold shares of stock of your employer. I am, therefore, also not in the sell immediate upon vest camp either. 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.

You can get these values by going back to the 10K (financial statement footnotes) for the years you got these grants and see what value was placed on them by the company for the purposes of determining how much to expense as stock-based compensation. These option pricing models are fairly sophisticated and do come up with a value per share of the option on the grant date. So if the current stock price exceeds the strike price by the value used for expensing, that could be an indicator that the options are fully valued.

Bottom line is IMHO there is no one right answer.
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SnowBog
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Re: Handling Stock Grants

Post by SnowBog » Tue May 07, 2019 2:05 pm

Agree with Mike... You need to figure out what's best for you...

I originally (currently) hold "too much" company stock. But it's probably my best "accident", as it's up nearly 3x since the original grants.

If I wasn't as confident in my company stock, I'd have been selling all along. When asked "is this something you'd invest your own money in..." , it is and I did (few years before I worked here, those shares are now up 5x on my original investment).

Lots of my coworkers sold their's and hold no company stock, and they regret it... (For probably too many though, they likely spent the money and didn't reinvest it into something like VTSAX... Those that reinvest are likely doing just fine...)

That said, since finding this site, and learning it is generally not advisable to have more than 5-10% in any one stock (especially the one that provides your paycheck), I've decided to sell off all new grants/ESPP going forward and diversify. My estimated holdings should be in that 5-10% range when by the time I retire.

That works for me...

As for the mechanics, my grants go into Fidelity directly, and the company withholds some to cover taxes (but never enough...). But I've transferred all "long term" shares I plan to keep into a separate account at Fidelity. That let's me me easily see/dispose of new shares as they arrive. I don't think I've seen a way to automate that yet at Fidelity, so I have to manually place the sell orders. But that's very manageable... I just use "limit orders" to sell at (or above) the grant price. Generally they sell right away, but on the off chance the stock takes a one day dive, I don't want to sell below the grant amount...

HawkeyePierce
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Re: Handling Stock Grants

Post by HawkeyePierce » Tue May 07, 2019 2:41 pm

SnowBog wrote:
Tue May 07, 2019 2:05 pm
That said, since finding this site, and learning it is generally not advisable to have more than 5-10% in any one stock (especially the one that provides your paycheck), I've decided to sell off all new grants/ESPP going forward and diversify. My estimated holdings should be in that 5-10% range when by the time I retire.
This is key for me. The last tranche I received was equal to 20% of my investable assets (I'm very early in accumulation). I'd be crazy to keep that. If I kept all my tranches this year and our stock price held steady I'd end up at 44% company stock, 56% index funds.

I *might* keep my next batch of ESPP proceeds, since it's a smaller amount and would only equal about 5% of my assets.

If I'd held my company stock over the last few years I'd be doing incredibly well right now. We're up 100% over just the last 12 months, but we've had a ton of volatility over that time period and I can equally imagine us being down instead.

sco
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Re: Handling Stock Grants

Post by sco » Tue May 07, 2019 11:06 pm

I sell everything and apply it the same as I would a found $100 bill. The next dollar (or $100) should be applied as planned, regardless of the source (baring crazy tax issues).

Megamill
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Re: Handling Stock Grants

Post by Megamill » Wed May 08, 2019 9:02 am

For those of you that choose to hold some of the company stock grants (and watch them grow), when you finally do sell, how are taxes calculated? (Please explain as if to a caveman :happy )

dbr
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Re: Handling Stock Grants

Post by dbr » Wed May 08, 2019 9:11 am

There is a big difference between RSU's, ISO's, NSO's, and ESOP's both regarding taxation and strategy. We need help to understand what this is.

For a taxation resource see here: https://www.amazon.com/gp/product/19387 ... 4429af1a41

Megamill
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Re: Handling Stock Grants

Post by Megamill » Wed May 08, 2019 9:20 am

For RSUs--how would they be taxed when sold (long after vest)? The withholding has already been taken and that's what confuses me because there will also be LTCG, right?

dbr
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Re: Handling Stock Grants

Post by dbr » Wed May 08, 2019 9:27 am

Megamill wrote:
Wed May 08, 2019 9:20 am
For RSUs--how would they be taxed when sold (long after vest)? The withholding has already been taken and that's what confuses me because there will also be LTCG, right?
Yes, possibly. Note withholding is just withholding and not necessarily the actual marginal tax cost of the transaction, but you probably know that. This article might be helpful: https://www.schwab.com/public/eac/resou ... facts.html

There are other articles on the web. It is probably easier to find a good article than it is for someone here to write one. If worse comes to worse it might not be a bad idea to consult a tax accountant the first time. With matters tax everything depends on the individual situation.

Megamill
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Re: Handling Stock Grants

Post by Megamill » Wed May 08, 2019 9:41 am

Thanks for that link.

"When you later sell the shares, you will pay capital gains tax on any appreciation over the market price of the shares on the vesting date."

I think that answers my question.

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