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RSU – Keep or Sell?

RSU – Keep or Sell?

June 01, 2022
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Since the financial crisis of 2007 and 2008, investors have become accustomed to a protracted bull market with only temporary dips. However, in recent months, the Fed has quickly transitioned from being accommodative to becoming hawkish with higher interest rates and monetary tightening, which has led to the painful market sell-off, especially in growth stocks (e.g., TMT and biotech sector). The market volatility and sharp declines, not seen since the early days of the pandemic and more importantly the protracted nature of this sell-off, have rattled even the most seasoned investors.  

In my years of stock compensation planning, I often encounter clients with 70%, or even >90%, of their liquid net worth concentrated in only one stock - their company stock. When all is well with the stock market, the clients become confident and can anticipate a bright future for their company. However, in our recent financial planning conversations with clients, we witness more and more clients rushing to make emotional and reactive decisions driven by the poor market and steeply declining stock prices. In fact, the question that we now very frequently hear from clients is, “Should I sell my Restricted Stock Unit (RSU)?”  Whereas before this market downturn, clients were only concerned about the potential tax obligations from their valuable RSUs. 

With more investors realizing a protracted market downturn could be a norm, how to handle your stock-based compensation can have a meaningful impact on your family’s financial goals and long-term wealth.

“Should I keep or sell the RSU’s when vested?”

There are several factors to consider when determining whether to keep or sell your vested RSUs. We would suggest you to ask yourself three key questions:


Questions #1: “If you receive a $100k cash paycheck, would you use the cash to buy your company’s stock?”

If your answer is NO, why would you keep the RSU then?  If you wouldn’t use your cash to buy shares of your company’s stock, then it may make more sense to sell a portion or all of your RSU after vesting.  The only difference between the $100k of RSU and $100k in cash is the withholding tax rate, which I will discuss in more details in the following.


Question #2: “Do you have enough cash to cover your tax liability?”

You might think you will never lose money on vested RSU’s, since you are not receiving cash. However, that is not always the case. Do not forget there is still Uncle Sam. During my stock compensation planning, I was surprised that many clients owe large tax bill without even realizing it. The majority of clients thought their company helped to take care of their individual tax withhold on their W2. While this is true for the base salary, this is not the case for RSU’s.

Under IRS Notice 1036, a flat rate of 22% is allowed by the IRS for the supplemental wages like RSU (37% allowed for an amount above $1mm). However, the 22% is usually less than the actual marginal rate that needs to be applied to individuals who work at tech companies, due to the meaningful stock-based compensation issued to these individuals.

Accordingly, it is important to calculate your potential tax bill for the RSU’s and sell enough RSU or set aside proceeds to cover taxes in excess of the 22% usually withheld for federal tax and state income tax.


Question #3:  “Taking into account both vested shares and unvested future compensations, what percentage of your net worth is tied to one single stock’s performance?”

Indeed, in my experience as a financial planner, often I come across clients with 70% or even 90% of their net worth tied to one single stock. The prolonged bull market in the past 10 years helped their asset enjoy double, triple or even ten times growth. However, in general, any portfolio with a single stock holding of more than 20% is considered concentrated. The risk of amplified losses may occur from having a concentrated portfolio. As the phrase goes, “Concentration Builds Wealth, Diversification Protects Wealth.” Do you really want to put all your eggs in one basket and take a chance?

Even if you are willing to take a chance and put all your investment eggs in one basket, make sure you won’t become bankrupt if your basket drops and all the eggs break. Make sure you at least reserve enough cash to cover the minimum life expenditures, as well as setting aside a rainy-day fund. In addition, you may would like to consult with a financial advisor on whether your children’s future education, your retirement, your basic family life insurance are all taken care of when you “triangulate” how many RSU shares to keep.

Once all three questions have been acknowledged and interpreted, the answers will better equip you to decide how many RSU’s you should keep, how much concentration risk you can endure, and what kind of diversification strategy you should take for your stock compensation.

During my years of planning and consulting, I have not seen many clients that have a well-designed financial plan before they come to us for planning. Many individuals sell their stocks when they feel panicked or when they are in need of funds at the moment. Evidently, using the single stock brokerage account as a savings or a “rainy day” funds will not be a wise idea. The market will rise and fall over time due to the economic cycles. Events such as the COVID-19 pandemic and the 2022 inflation rates (referred to as “Black Swan” events) can cause sudden market corrections. It is essential to have a strategy in place that takes into consideration of the market uncertainty. For instance, a laddered stock goal plan can be designed for clients that continue to receive the company’s single stock. We would cooperate with the client to set up the stock price goal with selling portions of the stock when the price hits the pre-determined goal. A well-designed stock compensation strategy will help the client to avoid the emotional decision during the stock market volatility, which affects the financial future and long-term wealth of the individual.


Work with a Financial Planner with expertise in this area to navigate the best course of an action plan.

Stock compensation can have a meaningful impact on your family’s financial situation. When one becomes proactive about planning and structuring your share sale strategy, you will be more prepared to make the most of your stock compensation and achieve your financial goals, especially during the volatile market environment.


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor. 

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.