Deciding to sell company stock can be tricky. As an employee you are closer to your company than any number of companies or strategies you could invest in. This closeness provides an allegiance to the company stock. You may even feel worried that if you sell now, you might give something up should the share price go higher. Timing is everything.
While holding a large percentage of your net worth in your company stock has the potential to lead to massive financial gains, it has an even greater chance of putting your long term financial goals in jeopardy. So how do you put a proper plan in place to extract value from your vested RSUs and better secure your financial future?
Common Client Scenarios:
Consider Every Angle
Framing this entire process correctly is a great first step. Ask yourself: “If my company paid me a large, taxable cash bonus- would I take the entire proceeds and purchase only my company stock?” For most, the answer to this question is no. However, this is what you are opting to do when you decide to not sell vested RSU.
Accruing the most amount of company stock possible is not the main goal. Financial goals usually look like this:
Ask yourself what are your personal financial goals?
Everyone wants to avoid the unwanted surprises at tax time. A proper plan takes into account taxes at time of vest and at time of sale. A personalized tax projection is a great tool to make sure that you don’t end up owing taxes. The purpose of a tax projection is to determine how much you may owe in additional tax as a result of the vest and/or sale. This additional tax does not get automatically withheld at vest or at time of sale. Once you know how much you may owe additionally, you can set that money aside. We prepare a tax projection at every step along the way. This is a major benefit of using an investment and planning firm that is also a CPA firm.
At the core of a successful long term financial strategy is an investment portfolio. Your investment portfolio drives the success of your personal financial goals. When you retain too much in your company stock, your financial outcome is too dependent on the outcome of a single company. A decision to reinvest money outside of your company is usually a good idea.
When designing a long term investment portfolio, diversification is your friend. A diversified portfolio doesn’t just own one company, it owns many. A diversified portfolio owns companies across different sectors, industries, and geographies. In addition to stock, a diversified portfolio may also own other assets like real estate, municipal bonds, or treasury bonds.
Finally, many who are receiving significant amounts of RSUs will also be in the highest tax brackets—at both the Federal and the state level. This means they will want their investment portfolios to be as tax efficient as possible. A more tax efficient investment portfolio means that you keep more of your gains. An inefficient investment portfolio means that you’re potentially losing your investment gains in the forms of unnecessary taxes.
For RSUs in particular, it’s important to remember that vesting is not a singular event. Not only does a grant have multiple vesting periods, but the longer you are at the company the more grants you will accrue. It’s not uncommon for a long-time employee to have several RSU grants vesting concurrently. If the company stock has appreciated, prior grants will be worth more.
Successful RSU planning doesn’t just happen once, it is a continual and repeated process. Identification of your changing financial goals, taking advantage of tax planning, and ongoing investment management adjustments are all the basis of achieving long term financial success.
Let’s design an actionable plan for your company stock.
We believe that to properly manage your assets, we need to have a complete picture of who you are and what you hope to achieve.