Which to Hold - ESPP or RSU

[rob]

Okay... before I get the answer I gave... This is from a conversation I had with a friend and didn't really know the answer apart from dump em both when they vest and you can get your hot little fingers on them... which is what I do and believe is the "right" answer for other reasons .

Assume:
- You want to hold $x worth of employer stock and have both ESPP and RSU's (ignore the sell for taxes bit).
- The ESPP is a rolling 6-months... meaning 2 years minus 6 months payroll collection giving you 18month to hold for long-term tax vs the 12 months for RSU's. I believe that the offer start is the start of payroll deduction regardless of the look-back period for discount.

Which would you hold to get long-term tax rates?

I couldn't think of any real difference apart from the extra 6 months holding period to qualify for long-term.... Some extra tax hassle dealing with ESPP for long-term (remembering to adjust the cost basis across tax years).

Am I missing anything (yes, yes... apart from that gorilla in the corner of the room saying this is a bad idea)?

[Makefile]

Whether it's a good investment aside, it would be better to hold ESPP shares rather than RSU shares. With RSU shares, the cost basis should always be FMV as of the date of vesting. With ESPP shares, if the stock moved in the correct direction between each of the grant date, the purchase date, and the sale date, some portion of the discount might be reclassified as capital gain rather than ordinary income in a qualifying disposition. In addition even in a disqualifying disposition it seems that the discount on ESPP shares that gets reported as ordinary income is exempt from Social Security, Medicare, and Net Investment Income tax.

[PersonalFinanceJam]

I’d personally still go with the answer of neither and sell both immediately without worrying about the tax treatment.

[Zipster]

Of the many irrational financial mistakes I have made, many involved RSUs and ESPP shares. Don’t try to hang onto them to get the long term capital gains— just sell them as soon as you can and put the money elsewhere.

[dcabler]

I’d personally still go with the answer of neither and sell both immediately without worrying about the tax treatment.

This. Always

[watchnerd]

I sell my RSUs right away, as they're taxed as income (including withholding).

I usually hold my ESPP for at least two years because I treat it as a stock investment, not an ersatz savings account.

[8301]

If you acquired RSU and ESPP around the same time, ESPP shares tend to have lower cost basis if there is a discount on ESPP purchase. If there is a look back on discount, the discount may be even larger. The discount is subject to ordinary income taxes when you dispose of ESPP shares. In other words, taxes are deferred.

[KRP]

If you acquired RSU and ESPP around the same time, ESPP shares tend to have lower cost basis if there is a discount on ESPP purchase. If there is a look back on discount, the discount may be even larger. The discount is subject to ordinary income taxes when you dispose of ESPP shares. In other words, taxes are deferred.

I've done the hold ESPP until qualified disposition method for many years, and then switched to the sell immediately non-qualified disposition method for many years, both through many market eras. For most, immediate same-day-sell (take the net proceeds and go invest in a total market index) is the way to go.

Same with RSUs.

[anon_investor]

I’d personally still go with the answer of neither and sell both immediately without worrying about the tax treatment.

This. Always

+2.

[SmileyFace]

Sell both and diversify.
You will have money riding on unvested shares and the next ESPP period - that is enough to let ride - no need to risk vested and purchased amounts.