Should you sell RSUs when they vest, or keep the shares and hope they appreciate? For most employees with meaningful equity compensation, selling at vest and reinvesting in a diversified portfolio is a sensible default. The reasoning comes down to three factors: what the research says about individual stocks, how RSUs are taxed, and how much of your financial life already depends on your employer.
If you’d like help coordinating your vesting schedule, taxes, and investments, you can schedule a conversation. You can also see how we work on our services and fees page.
Why Many Employees Sell RSUs at Vest
Restricted stock units are generally taxed as ordinary wage income when they vest and the shares are delivered. The taxable amount is based on the fair market value of the shares that day.
Say 500 RSUs vest when the stock trades at $200. That’s $100,000 of wage income, subject to income and payroll taxes. You now own shares worth about $100,000 before withholding, and you can keep them or sell them and invest the proceeds elsewhere.
A useful test: if your employer paid you a $100,000 cash bonus instead, would you use it to buy $100,000 of company stock? If you’d choose a diversified portfolio, then holding your vested shares means making a different investment decision simply because you received it in shares rather than cash.
What the Research Says About Individual Stocks
Two long-running bodies of research explain why diversification matters.
A small group of stocks drives most of the wealth creation. In his 2018 paper “Do Stocks Outperform Treasury Bills?”, finance professor Hendrik Bessembinder studied the lifetime returns of U.S. common stocks going back to 1926. About 4% of listed companies accounted for the net wealth the market created above Treasury bills, and roughly four out of seven individual stocks had lifetime returns below one-month Treasury bills. A diversified index captures the exceptional companies automatically. A single stock only does if it happens to be one of them.
Concentrated positions carry real downside. J.P. Morgan Asset Management studied every stock that belonged to the Russell 3000 index from 1980 to 2014, a universe covering roughly 98% of the U.S. market. About 40% of those stocks suffered a permanent decline of 70% or more from their peak. About two-thirds trailed the index over their lifetimes, and around 40% lost money in absolute terms. Technology had one of the highest rates of permanent loss at about 57%, which matters because tech companies grant a large share of RSUs.
None of this means your employer’s stock will fall, and some companies do far better than the market. The difficulty is identifying them in advance and deciding whether the possible reward justifies the extra risk. These studies cover individual stocks in general and don’t guarantee that selling at vest will beat holding over any particular stretch. They do show why many planners suggest you sell RSUs and diversify instead of concentrating in one company.
RSU Taxes: Holding Doesn’t Delay or Reduce the Tax Bill
A common belief is that keeping vested RSUs offers a tax advantage. In most cases it doesn’t. The vest value is included in your wages when the shares are delivered, and selling later doesn’t undo that.
Your cost basis starts at the amount already taxed as wages. Any price change after vest creates a capital gain or loss when you sell:
| Event | Amount |
|---|---|
| 500 shares vest at $200 | $100,000 |
| Tax basis | $100,000 |
| Shares sold at $202 | $101,000 |
| Capital gain | $1,000 |
The $100,000 is taxed as wages, and only the extra $1,000 is a capital gain. If you sold at $198, you’d have a $1,000 capital loss. When you sell RSUs right at vest, the gain or loss is usually small.
Short-term and long-term gains. If you hold the shares, gains on shares held one year or less are generally taxed at ordinary income rates. Gains on shares held longer may qualify for lower long-term rates. Higher earners may also owe the 3.8% net investment income tax. A longer holding period can lower the tax rate on appreciation after vest, but it doesn’t make the concentration risk any smaller.
Withholding often falls short. Employers generally withhold taxes at vest by withholding shares or selling a portion to cover them. Federal supplemental wage withholding is 22% on supplemental wages up to $1 million in a calendar year and 37% above that. If your marginal federal rate is 35%, the 22% withholding can leave a meaningful gap. Additional Medicare tax may apply to wages above the relevant threshold, and your final bill also depends on your other income, deductions, filing status, and state taxes.
Estimate your full-year income, RSUs included, before the year ends. You can then adjust paycheck withholding or make estimated tax payments, and your tax professional can help you size them.
Concentration Risk Beyond Your Brokerage Account
Looking only at your brokerage balance can understate how much you have riding on your employer. Your salary, annual bonus, unvested RSUs, stock options, ESPP shares, and vested stock may all depend on the same company.
Consider a hypothetical employee with $400,000 of annual compensation, $1.5 million of unvested RSUs, and $800,000 of vested company stock. The $800,000 is only one piece. If the business hits a rough patch, the share price could fall while the bonus shrinks, future grants get smaller, or the job itself is at risk. The employee could also need to sell investments for living expenses at the moment the company’s stock is under pressure.
There’s no universal percentage that’s right for everyone. Some planners use 10% of investable assets in a single stock as a guideline. The right limit depends on:
- How much of your investable assets are already in company stock
- Your salary, bonus, and expected future grants
- Your retirement timeline and spending needs
- How large a decline you could absorb
- Whether you hold other concentrated investments
For employees with large unvested grants, even a modest brokerage position can represent more exposure than it appears to. At Inclinevest Wealth Management, we emphasize global, evidence-based diversification, and selling vested shares is often the most practical way to move toward it. You can read more about our investment philosophy.
Why Employees Hold Vested Shares
If selling is the sensible default, why do so many people keep their shares? A few patterns come up again and again.
Inertia. Selling takes an action and holding takes none. A large position can build up simply because nobody made a decision.
Familiarity. Employees know the products, leaders, and customers, which creates confidence in the stock. The market has usually priced in most publicly available information already.
Anchoring. Focusing on a past high or an earlier vest price can make selling feel like locking in a loss, even though the compensation was already earned and taxed.
Loyalty. Believing in your team and your company is understandable. It’s a separate question from whether more company stock is the best use of your personal wealth.
The most reliable fix is a policy set in advance. If your plan administrator allows it, you can set up automatic sales at each vest. Otherwise, a recurring calendar reminder and a defined process help keep you consistent.
When Holding Some RSU Shares Can Make Sense
Selling at vest is a useful default, and some situations call for a more tailored approach.
Ownership requirements. Executives and other senior employees may be subject to company stock ownership guidelines that affect how much they’re expected to retain.
Trading restrictions. Employees with access to material nonpublic information may face blackout periods, and some officers and directors have added reporting obligations. A Rule 10b5-1 trading plan can allow predetermined sales under the right conditions, though it doesn’t exempt anyone from insider trading laws and has specific setup requirements. Check with your company’s legal or compliance team before arranging sales.
A deliberate allocation. You may want a limited position because you have a strong view on the company. That can be reasonable when you size it on purpose, understand the downside, and account for your existing holdings and future grants.
Older shares with large gains. If you’ve accumulated shares through years of vesting or an ESPP, selling everything at once could trigger a large capital gains bill. A phased approach can balance tax cost against concentration risk. For a sufficiently large, appreciated position, a tax-managed separately managed account may be worth evaluating, since it can help manage the timing of gains. It can’t guarantee tax savings or remove concentration risk, and the results depend on cost basis, position size, and your tax situation.
A Practical Plan to Sell RSUs at Vest
A consistent process makes equity compensation easier to manage.
- Set a company stock limit. Decide how much of your investable portfolio you’re comfortable holding in your employer, counting existing shares and your income exposure.
- Decide what happens at each vest. For many employees, the simplest policy is to sell RSUs promptly and reinvest the proceeds according to the financial plan. Confirm that standing instructions comply with your employer’s trading policies.
- Plan for taxes before year end. Estimate income with RSUs included and review federal and state withholding, capital gains, and payroll taxes.
- Give the proceeds a purpose. Depending on your situation, that may mean a cash reserve, paying down high-interest debt, funding retirement accounts, and investing the rest in a diversified portfolio.
- Review it each year. Changes in grant size, stock price, pay, retirement timing, or household assets can shift your concentration.
Bringing It Together
Selling RSUs at vest separates your compensation from the decision to make a concentrated investment in your employer. The research shows that a small number of companies drive most market wealth creation and that concentrated positions carry substantial downside. Neither finding guarantees a diversified portfolio will outperform your employer’s stock over a particular period, and both support taking concentration risk seriously.
The tax rules point the same way. The ordinary income event happens at vest whether you sell right away or hold, and later gains or losses are a separate investment outcome.
If you’d like help evaluating your own RSU strategy, schedule a conversation or read about our equity compensation planning. You can also review our services and fees.
Key Takeaways
- Selling at vest turns stock compensation into capital you can allocate according to your financial plan.
- Bessembinder’s research found that about 4% of listed U.S. companies accounted for the net wealth the market created above Treasury bills.
- J.P. Morgan’s research on Russell 3000 stocks found that about two-thirds trailed the index over their lifetimes and about 40% suffered permanent declines of 70% or more.
- Your salary, bonus, unvested RSUs, and vested shares can all depend on the same business.
- Holding gives you no tax advantage on the vest value, and the 22% federal withholding rate often leaves high earners with a balance due.
- Ownership requirements, trading restrictions, a deliberate allocation, and large gains on older shares can justify keeping some shares.
About the Author
Gabriel Motta, CFP®, MBA, is the founder and principal of Inclinevest Wealth Management, a fee-only fiduciary retirement financial advisor and financial planner. He works with high-net-worth pre-retirees and retirees nationwide, with particular experience serving aerospace and defense professionals. As a retirement planner and wealth manager, Gabriel helps clients navigate retirement income planning, Social Security strategy, tax-efficient withdrawals, and equity compensation. Gabriel is a NAPFA and XY Planning Network member. Learn more about Gabriel and Inclinevest Wealth Management or schedule a conversation.
Sources
- Bessembinder, Hendrik. “Do Stocks Outperform Treasury Bills?” Journal of Financial Economics, 2018: https://doi.org/10.1016/j.jfineco.2018.06.006
- J.P. Morgan Asset Management. “The Agony & the Ecstasy: The Risks and Rewards of a Concentrated Stock Position,” 2014: https://www.chase.com/content/dam/privatebanking/en/mobile/documents/eotm/eotm_2014_09_02_agonyescstasy.pdf
- Internal Revenue Service. Publication 15, Employer’s Tax Guide: https://www.irs.gov/publications/p15
- Internal Revenue Service. Topic No. 559, Net Investment Income Tax: https://www.irs.gov/taxtopics/tc559
This article is for general informational and educational purposes only. It isn’t personalized investment, tax, or legal advice, and it shouldn’t be relied on as a substitute for guidance specific to your situation. Inclinevest LLC is a registered investment adviser. Registration doesn’t imply any level of skill or training. Please consult a qualified professional before making decisions about your own financial circumstances.
