What I wish I knew about ESPP and RSUs sooner | Hacker News Reader

What I wish I knew about ESPP and RSUs sooner

blog.demofox.org

88 pointsingve138 comments

Regarding this quote on ESPP programs:

> If the company does poorly, the employees with ESPP will lose, and get their money back at a reduced rate, which is great for the company, effectively having to pay less payroll if things are going poorly.

This doesn't match my experience. I've obviously not worked at every country on earth/in the US but the ESPP programs I have used have always been a 15% discount on the low point of either the start or end of the ESPP period. e.g. it's a near guaranteed 15% gain (obviously stock market so no such thing as a real guarantee[1]) because even if the stock price has dropped, because you're still getting the stock at a discount on the reduced price. Assuming you have no reason to believe there's a chance of a sudden 15% (or whatever) stock price drop, your employer is publicly traded (and has trade volume), and they are doing "vs lowest price", ESPP is one of the lowest risk ways of getting a 15% gain on your funds.

[1] e.g. because stock sales/purchases are still inexplicably not instantaneous it's conceivable something terrible could happen in the multiday period between purchasing your shares at a discount, and being able to sell them.

Echoing your thoughts and expanding on them.

The multi-day period is usually "1" trading day.

You get shares on a Monday, you can sell them next day on the Tuesday.

You get shares on a Friday, you can sell them next trading day on the Monday.

You get shares on a Friday before a Monday public Holiday, you can sell them next trading day on the Tuesday.

Of course there could be exceptions, but that's how it generally works, and basically locks you in from the time of allotment till the time the market opens. So the risk you have is of calamitous events happening during that time - Black Monday or something like that, but otherwise it would be rare for markets (company stock) to fall 15% and the entire ESPP allocation to be a net loss.

Yeah basically it's 15% worse case if your company stock is on a consistent downward or sideways trajectory. And 15%+ is the stock is generally rising.

There is always a small black-swan chance I guess. In all the places I've worked, the shares are purchased at the close of the trading day and available to sell by the next morning.

Yeah, and black swan is going to happen only once in a while if you do this for five years, maybe once you loose more than 15%, but other times you'll make money

> [1] e.g. because stock sales/purchases are still inexplicably not instantaneous it's conceivable something terrible could happen in the multiday period between purchasing your shares at a discount, and being able to sell them.

I recall participating in an ESPP where each time it vested (each 6 months) ended up being in a trading black out window, where we had to wait until Earnings Release + 3 days before being able to dump the stock. Lost that 15% gain just about every time.

That's relatively rare in tech, but some companies are very touchy about their trading windows. Usually smaller companies, lower floats, lawyers trying to manage insider trading risks, etc..

For larger companies, it's almost always -- ESPP purchase happens, you can sell it immediately.

The actual return on an ESPP is actually way better than the discount too. You get that discount, even for the money you contributed most recently. A 15% discount is actually a 17% return (1/.85), and you get that return on money you contributes 6 months ago and also the money contributed at every point up to the last pay check included. So if that last one was 2 weeks before the purchase, you get ~17% in 2 weeks.

Overall, it works out to a 90% annual return even if the stock stays steady or goes down. If it goes up, all the better.

Unfortunately, its not like you can "keep money" in an ESPP and actually earn that 90% over a longer period of time, but it's a great deal for short term illiquidity.

I worked for a company that offered ESPP decades ago. The stock had an odd habit of dipping in the middle 3 months of the period with price peaks at either end. While continuing to steadily decline YoY. The company went bankrupt about three years after I finally left. There were very few employees who made any money off of the ESPP shares.

15% discount is by no means the only common ESPP benefit. The company I work for doesn't offer any discount at all, the only benefit is buying at the minimum price over the purchase period.

Also, the value has to be compared to other uses of your money - with an ESPP you're essentially lending money to your company for some time, and to know if it's worth it for you you need to compare to other uses of that money. It's indeed hard to beat a minimum 15% discount (17% return on investment as someone else explained), but not impossible. And with ESPP plans that don't offer any guaranteed discount, if the stock is going down, you'll be better off even just depositing the money.

First off, it’s not always 15%. My current employer only gives a 5% discount. Second, the “look back” feature where you get the best of the starting and ending prices is also far from universal. My current employer also just gives you the closing price, reduced by the 5% discount.

So there are ESPP programs that aren’t such a slam dunk and actually just slightly edge out current money market rates. Add to this that they also cap the amount you can put into it fairly low and it looks even more underwhelming. Will you take a 5% bump on 6% of your income? Well, sure, I’m not going to turn it down but I’m also not throwing a party over it.

Nearly everything in this article is too simple to be correct, or depends on details of your specific plan that is not generalizable. Two examples: ESPP is considered long term capital gains after the later date of 1 year after purchase OR 2 years from the date of the price you paid. Also typically the look back is the lower of the starting and ending price for a period, not lowest in the period.

The only way to provide simple advice on RSUs and ESPP is, as others have said:

Sell them immediately and diversify.

For everything else do research and don't trust a random article, coworker, or HN comment (mine included)

> Sell them immediately and diversify.

I can diversity even quicker with the extra cash I'd get instead RSUs and ESPPs.

That’s true, but with ESPPs, you get a discount on the stock price, effectively guaranteeing a decent return that would be hard to beat.

Unlike ESPPs (which you essentially buy with part of your paycheck) RSUs are pay with strings, so you usually don't have a choice between money and RSU.

You can think of RSUs as 'golden handcuffs' compensation. The point is to reward you, while discouraging you from ever leaving because there will always be some that are not vested.

You always have a choice between RSUs and cash. Negotiation is always on the table regardless of what anybody will tell you.

Of course, it might be that you don't have enough negotiating power, but you can always choose another job.

Personally I will never work at a place where I can't negotiate out of RSUs.

You are talking about initial grant. I am talking about recurring compensation. I am talking corp, you probably startup.

In a corporate environment you'd not last long trying to renegotiate your comp every year.

Why should I be more discouraged from leaving because of unvested RSUs than I would be because of future unpaid salary (cash)?

Since all companies assume their stock will go up from time of issue, you may have been promised $100k in stock that is now worth $200k. So your initial "cash" future promises are now worth more. Lots of people at e.g. Meta are in this situation since their meteoric rise.

At least where I work, RSUs are often dangled to you as a way to justify a lower base salary. RSUs are built into the 'compensation philosophy', wherein the RSUs are combined with salary to calculate total compensation.

You're underpaid with regard to salary, so you'll lose a lot more by foregoing RSUs than you would if you were just paid a fair base salary without RSUs.

The other day I was talking to my wife about my frustrations at work, and she said "Well, just don't quit before you get that RSU vest." And I'm sure I'm not the only one who has had such conversations.

You shouldn't, but that's the psychological trick at play.

They are betting that your loss aversion will tip the balance a little in their favor.

Both are ways for the company to have your income be invested in the overall success of the company, which makes sense from an alignment perspective. ESPP usually has a material discount benefit, which typically is a "can't lose" scenario if you sell immediately (with some caveats of course as immediately isn't technically possible).

RSUs and ESPP are actually two very different things. By default, anything of value your employer gives you is considered compensation, taxed at ordinary rates. RSUs fall into this category.

But there is something called "statutory stock options", of which there are two types: ISOs and ESPP. The main benefit (under statute) is that if you hold on long enough, instead of ordinary compensation income, the gains can be treated as long term capital gains (LTCG) and taxed at a significantly lower rate.

To be fair I never claimed they were the same, just that my "simple" advice applies equally to both. I only called out 2 examples of the many ways this article is lacking in nuance on the details.

The simplest and most comprehensive advice I've seen about ESPP and RSUs is simply to not be influenced by the fact that the value is delivered to you as shares. It's 2024, it's all fungible, selling shares requires a couple clicks and zero fees. Imagine that the value of your ESPP and RSUs was all delivered to you as cash - would you take that cash and invest in your company's stock? If yes, then sure, keep the shares; if not, then make the couple of clicks to sell it and do something else with it.

What I wish I knew about sooner was the mega backdoor Roth. https://www.bogleheads.org/wiki/Mega-backdoor_Roth

EDIT: Also interesting, I just heard the other day about https://heybenny.com/ - effectively payday loans so you can max out your ESPP if you would otherwise have trouble doing so due to cashflow.

> What I wish I knew about sooner was the mega backdoor Roth.

Absolutely. If your plan supports this, it’s a no-brainer way to put away an aggregate of $76,000 in tax-advantaged savings between a Roth, 401(k), and Roth 401(k). Depending on employer matching, you’re putting around $50,000 of that into post-tax buckets, so it will never see taxes again.

That said, it is bonkers to me that we have a system where most Americans’ only retirement savings option is $7,000 into some form of IRA. Anything availability of a 401(k) or mega-backdoor is completely up to your employer’s benefits package. It doesn’t matter how much you make, the availability of these tax-advantaged retirement options is entirely gated on your choice of employer.

In a just world we would eliminate the pointless and easily bypassed MAGI limits for IRAs and establish a shared tax-advantaged savings limit regardless of account type.

>most Americans’ only retirement savings option

Not true. Anyone can buy stocks and bonds, and for most part defer paying taxes on unrealized gains for decades. And when they do need to realize gains (i.e. sell), the tax rate will be the lower LTCG rate. And anything left over at death passes to heirs free of income tax (basis adjustment to FMV).

>a no-brainer way to put away an aggregate of $76,000 in tax-advantaged

You keep on using the term "tax advantaged" without defining what that means.

For Trad. IRA/401k compared to Roth, it is a simple matter of your future tax rate compared to today. If those two rates are the same, there is no difference[0]; if future tax rate is higher, go Roth, if future tax rate is lower, go Trad IRA/401k

> pointless and easily bypassed MAGI limits for IRA

Please explain "easily bypassed". If you meant the "backdoor" aspect, that is only easily by-passed if one does not have any pre-tax money in Trad. IRA. And if you mean Roth 401k, those are even much less common than the ordinary 401k.

>In a just world we would eliminate ....

Just as we would allow health insurance to be paid with pre-tax money, whether employed or not.

[0] for simplicity-- using round numbers and assume 5% simple annual investment return (no compounding), and 20% tax rate

Pre-tax contribution: $10K + (20yrs x 0.05 x $10K) = $20K

withdrawal at 20% tax = $16K net

Post-tax (Roth) contribution: ($10K - $2K tax) + (20yrs x 0.05 x $8K) = $16K

withdrawal at 0% tax = $16K net

> Not true. Anyone can buy stocks and bonds, and for most part defer paying taxes on unrealized gains for decades. And when they do need to realize gains (i.e. sell), the tax rate will be the lower LTCG rate. And anything left over at death passes to heirs free of income tax (basis adjustment to FMV).

I could have been more precise, but I figured it was pretty obvious through context: tax-advantaged retirement savings. That some people have the opportunity to save upwards of $75,000/yr in tax-sheltered accounts and others can only put away $7,000/yr is a complete travesty.

> You keep on using the term "tax advantaged" without defining what that means.

…because that term already has a commonly-accepted definition. And whether or not a Trad vs. Roth account is better for one's specific situation, either and both are better options that are available to a whopping $69,000 more of my savings than for most Americans.

> Please explain "easily bypassed". If you meant the "backdoor" aspect, that is only easily by-passed if one does not have any pre-tax money in Trad. IRA. And if you mean Roth 401k, those are even much less common than the ordinary 401k.

Jesus christ, what is the point of this nitpicking? None of it has anything to do with my actual point.

And yes, I mean the backdoor Roth. And if you already have money in a Trad IRA, you can roll that into an employer's 401(k) to no longer have to deal with the pro-rata rule.

Most motivated high-earners can get around the MAGI limits with nearly zero effort, which is my point. Just eliminate the damn rule altogether, combine everything into one global limit, and remove all the stupid hoops and tax-filing complications that result.

>tax-sheltered accounts

Buying growth stocks in a regular brokerage account is also "tax sheltered" in several ways, as I explained. What do you think high earners did for a hundred years before the the recent introduction of back door techniques?

Your "actual point" has little basis in the facts.

bangs head on desk

I have no idea what "facts" you think are a hard counter this belief. That buy-and-hold has some positive tax implications in no way repudiates the reality that it underperforms doing the exact same with either a) pretax funds, or b) capturing 100% of the gains tax-free.

Some Americans have the option to put over $75,000 a year into these types of accounts which are strictly better along virtually every axis. Most Americans are limited to $7,000. Many Americans who could put $7,000 in via a backdoor don't due to the various hurdles involved. This is patently indefensible. Every American should have access to the same level of tax sheltering regardless of employer.

Please go find some other windmill to tilt at.

You said "most Americans’ only retirement savings option is $7,000 into some form of IRA"

The fact is, that statement is not true. Some 85% of taxpayers work for employers or are self-employed, and many millions of those have access to 401k plans.

"Every American should have access to the same level of tax sheltering regardless of employer."

Since you are talking about $75K annual amounts, I read that as only high-earning Americans should have access, because you don't acknowledge that most Americans cannot afford to put $75K or more into retiremement every year, they need the money to put food on the table and roof over heads.

You are arguing for making a tax break for the rich more widely available but pretending like it is for the benefit of everyone.

You have no idea the point I’m making because you’re too busy being fixated on litigating pointless semantics to care.

This article doesn't seem to say anything beyond the obvious, but here's what I wish I knew -

- Be conscious of what is going on with sell to cover on RSUs if you go that route, especially shortly after you joined a company or vesting a new grant these will also be sold at short term gains (if the stock went up), also going towards you taxable income. This is an easy way to end up with a surprise monster tax bill. I prefer to always pay the taxes in cash if possible to make everything simpler.

- Make sure to plan to pay quarterly taxes if the stock is rising/you want to sell a fair bit to not get stuck with both a big bill at tax time and penalties

-Short term losses can offset short term gains, long term losses can offset long term gains, but they can't offset each other

-DO NOT FORGET TO ADJUST YOUR COST BASIS ON RSU SALES WHEN FILING TAXES

> Be conscious of what is going on with sell to cover on RSUs if you go that route, especially shortly after you joined a company or vesting a new grant these will also be sold at short term gains (if the stock went up), also going towards you taxable income. This is an easy way to end up with a surprise monster tax bill.

I don’t think this is true? My understanding, from my company which mandates sell to cover on vest, is that the cost basis is the price on the day of vest. The shares that are sold to cover are sold at the same price so there are no gains or losses and the amount that is sold is (in theory, if you’ve set it up this way) equal to your marginal tax rate so you end up paying around the correct amount to not have a huge tax bill.

If you set your sell to cover % very low, then yes you will have a large tax bill because the vest value is treated as ordinary income and taxed at that rate. I do know some people at my company that intentionally set it to the lowest possible % and invest the difference while paying quarterly estimated tax payments, but it’s too much of a hassle for me personally.

Perhaps this only happened to me from the difference in market fluctuations in the day or two between vest and the sale (this happened to be in 2020 when my company was on a heater). Or maybe etrade allows you to sell shares from a different grant than the one vesting to cover and I didn't realize? In either case in 2020 it seemed like I got some rich guys W2 instead of mine and most of my sales were just sell to cover. I find it ultimately more simple to do the tax payment in cash rather than also involving a stock sale on top. Interesting you company mandates sell to cover, or do you just mean that is the default?

If you sell RSUs immediately upon vesting, there is no capital gains, only ordinary income.

What likely happened is that the supplemental withholding rate (22% for supplemental income up to $1 million, and 37% for income exceeding that amount) was lower than your marginal tax bracket, and the tax you owed was a result of the supplemental income (the RSUs) incurring more tax liability than was withheld for them.

Something that commonly happens is that your brokerage sent you the cost basis for those sales at $0 on your 1099 form. There's typically an adjusted cost basis buried on their website which is what actually needs to be entered into your tax software as the cost basis, not $0.

So say you had $50k in stock vest and you sold $10k to cover the income tax. It's likely that when you import your 1099 that the cost basis is set to $0 on the $10k which if treated as a gain is a $2k-$3k tax bill. But if you find the adjusted cost basis and enter it the taxes drop to essentially $0.

So if you've experienced a huge, unexpected tax bill from RSUs vesting, go back and look at your tax return. If you see a $0 cost basis on the form then you overpaid. It may not be too late to amend your return and get it back.

This.

Yes, you likely will get a supplemental document to your 1099 from etrade (or whoever) with the correct cost basis.

> Something that commonly happens is that your brokerage sent you the cost basis for those sales at $0 on your 1099 form.

Can't emphasize this enough. Etrade does this, which is maddening. The form they send has the wrong numbers (zero cost basis).

There's another form buried in their website where you can get the actual cost basis. Must use that one, otherwise will massively overpay taxes.

Why Etrade why.

It's not Etrade, it is the IRS instructions for Form 1099-B, Box 1e (cost basis).

"If the securities were acquired through the exercise of a compensatory option, the basis has not been adjusted to include any amount related to the option that was reported to you on a Form W-2."*

> DO NOT FORGET TO ADJUST YOUR COST BASIS ON RSU SALES WHEN FILING TAXES

Say more? Why would I ever want to adjust my cost basis to something other than the shares' FMV at vest (which, in my experience, is always the default)?

With my (and everyone else at my companies) setup with etrade, you get a 1099, and then later an addendum with the adjusted values. Turbotax by default tells you to enter the 1099 sales, and after entering and submitting each row, you see the chance to adjust the cost basis, which you must enter manually from the addendum. Perhaps other brokerages have a more elegant setup. If you don't adjust you will be double taxed. This would likely be obvious to you if you sold a lot of shares, but if you just did some small sales, I can easily see someone accidentally double taxing themselves.

Very true for ESPP, but I haven't seen that for RSUs. Is your broker reporting the cost basis of the RSUs at $0? Otherwise why and how does the cost basis of an RSU even change?

Yes. Etrade reports the cost basis of RSUs as $0 on the 1099. You then must manually adjust the cost basis using a second schedule that shows the value of the RSU already taxed as income at the time of vesting. If you don't make this adjustment, you will be paying taxes on thousands of dollars in "gains" that aren't actually gains and have already been taxed as income.

Fidelity does the same thing. Cost basis of RSUs shows 0 on the 1099 and you get a supplemental 1099 with adjusted cost basis. If you don’t take care to use the adjusted value, you will be paying both income tax and capital gains tax on the market value at vesting, instead of just income tax as you should.

In some company setups, your company reports the vested shares as income on your W-2. They also report your RSUs as having a $0 cost basis. This results in being taxed twice.

E*TRADE at least provides an addendum that lets you know the adjusted cost bases to report to the IRS.

In my case this happens for RSUs and—I believe—not for ESPPs which are reported correctly out the gate.

> Be conscious of what is going on with sell to cover on RSUs if you go that route… these will also be sold at short term gains (if the stock went up)

These will be sold at exactly the value you acquired them at, meaning there are no gains whatsoever.

I’m pretty sure my sell-to-cover RSUs take a day or few to settle, resulting in a small but nonzero gain or loss.

The details may depend on the employer + brokerage.

The cost basis thing was always more of a problem for me with ESPP. However TurboTax imported the sale data the cost basis would be 0. For some reason it always took me 2 or 3 tries to find where to put in that info in TurboTax.

Yes, I have always had the same problem with ESPP lots with TaxAct, importing data from Fidelity. Fidelity reports a non-zero but incorrect cost basis, but for some reason the importer doesn't like those line items and imports them as zero.

I've never had a problem with cost bases for RSUs, they get imported just fine.

RSUs aren't "extra" pay though. They are shares in lieu of cash compensation. At some companies you can negotiate to get all of your RSU compensation as cash instead and that money will be part of your base compensation, which will make your taxes simpler and might be better for you in the long run.

If you sell your rsus when they vest its the same result

It's not. RSUs are taxed in the state in which they're granted, at least at my company. Not where they vest.

Uh, they're income to the employee in the state they work when they vest. California has a very weird and ambitious law that tries to claw income from grants made while the employee worked in California (even long after the employee has moved out of the state), but that is not the norm.

Can attest to this. I moved away from California in 2021 and continued to work for my employer. I pay taxes on RSUs that were granted in California as they vest in both California and my new home state. My state (and I expect most others) has a tax credit for taxes paid in both states.

If anyone finds themselves in this situation, I would highly recommend hiring a tax advisor who can help you navigate this.

Is this for grants that were initially made prior to 2022? Otherwise, I can't possibly see how California has any claim to that money.

Yes this is only for grants made while you were working in California. But even if the vest happens years later and you’ve lived in another state for years, California still wants their cut.

That's correct, only for grants that were made while I was living in California. Any subsequent grants I receive in my new home state are not subject to California state taxes.

> My state (and I expect most others) has a tax credit for taxes paid in both states.

I'm in the same situation but NY but opted out of this credit because for the amount I would get back on double-taxation, NY state wanted to tax me an additional 10x (and more than 50% of the value of the sold shares...) as much filing a return in their state even though I didn't earn any income there.

Plus an underpayment penalty.

I just skipped the NY return because I didn't earn any money there and shouldn't have to file a return with the state. Fuck them.

It's not really weird. California has a huge problem with people coming here to strike it rich, doing so, then abandoning the state in order to avoid taxes on the money they made while working here.

They're not exactly out of line in asserting that you earned that income while living in the state, even if you "happen" to move elsewhere just before selling your ISOs/RSUs.

But if you move somewhere else before they vest, you earned the money on the vest date, not the grant date. My four year grant is not “earned” the day I sign it. It’s incentive for four years of work.

Yes, but as far as I know that’s not the type of situation CA is generally chasing people down over. Maybe there are exceptions but I do agree with you that in typical situations it should be about when the equity vested, not when it was granted.

My reading of the tax code in California is that the tax is pro-rated over the time you were resident in CA. E.g you get a grant with a 4 year vest in California and move away after 1 year: 1st year California gets all the calculated tax, second they want 1/2, 3rd year 1/3, 4th year 1/4. Roughly like that (it’s actually counted in days).

Unvested grants aren't income. California is wrong. This is just a middle finger to people leaving the state, a group that conveniently happens to have no representation in the state government.

New York too. They tax based on the number of days spent in New York divided by the number of days between grant and vest dates.

I don't know of any state that does that. What state is your company in?

New York does this.

I'm remote, out of state for years and still have to pay taxes on my RSUs to NY.

They are split automatically at my company. If 4 year vesting, you live 2 years in CA, 2 years in MI, 50% of the income is counted as income for each states taxes.

I have never heard of any company who would entertain substituting RSU compensation for cash. If you asked your Google recruiter for 500k in cash instead of 250k in base and 250k dollars in annual RSUs, you'd be laughed out of the room.

Iirc Netflix did this

Netflix is the one notable exception. But they are the exception.

TikTok does it too.

They don't offer you to replace RSU with cash, they don't offer RSU at all to anyone, but give much higher salaries instead. That's not the same.

It's not FAANGs that do this, it's slightly smaller companies.

I have done this. My current employer offers this option if you ask for it.

Also when Facebook was first picking up Data Scientists I know people who were negotiating 500k all cash packages.

> Again, if you believe the stock is going to go up, and you want the stock, go ahead and keep these RSUs.

I would caution against this and just say: sell your RSUs and ESPPs immediately upon vesting. There's an argument against doing so for ESPPs—especially ones that have appreciated—due to reducing your tax bill. But for most cases, the difference in your tax bill just isn't worth the additional exposure of your net worth to your company's volatility.

I would further caution that it is far too easy to overweight what you think you know about your company when projecting its performance and severely underweight factors that you don't have any clue about. Your company's tech stack might be incredible and the product is a hit, but the sales team is nonexistent and your biggest competitor is two months away from eating your lunch. Or your product is complete shit but the CEO has been quietly negotiating a deal with Google on the side for 25% over market price. Or your company is executing at the top of its game and is completely unbeatable… until an unforeseeable market correction puts it out of business six months later.

As much as you think you know, you have absolutely no idea what your company's stock price is going to do over the next month, quarter, or year. If you happen to be in a position where you actually know, you're going to be bound by significantly stricter insider trading policies than just your company's standard trading windows.

100% agree. Don't put all of your eggs in one basket.

That said, by following this advice, I've now got $800k post-tax cash vs $4-5 million in stock, assuming I would have held on to my shares. Oh well.

"Don't put all of your eggs in one basket" doesn't mean "stay away from that specific basket".

There is a middle ground between holding everything and selling as soon as it vests.

Your income is already tied to your employer. For most people in most situations, attaching a significant fraction of your net worth to that same employer is an extremely risky position to be in.

Of course you don't have to sell everything always all the time the moment you can. As always, use your own judgment. But your default tendency should be to divest and diversify.

> I've now got $800k post-tax cash vs $4-5 million in stock

Of course that's true of any investment though. With that $800k in cash, you could have bought any stock. Including your employer's! And if someone is going to beat themselves up over not holding RSUs ("I knew it was going to go up!") that same logic would warrant putting even more money into company stock.

On the flip side, I was holding on to some ISOs that were very nearly bringing me to my retirement stretch goal. I just wanted to squeeze out 5% more. That was December 2021. Within a month or two they'd dropped to less than 25% of their value, and I lost well over six figures. The rest of the market recovered, my company didn't. If I'd sold instead of holding on for just a little bit more, I'd be retired today. C'est la vie!

I'm also in the position of feeling regret over selling stock to diversify that I would have been much better off holding on to. Even though I understand why logically I shouldn't feel bad, it feels like I made a mistake. I assume Kahneman and Taversky could tell me the particular mental bias that makes this happen whether you sell and it goes up or hold and it goes down, i.e. it feels more like a loss because you already held the key to the gain. Loss aversion maybe?

I feel like there's some structural similarities to the trolley problem. With hindsight, inaction (not pulling the lever) would have had the better outcome but you explicitly intervened. This is more painful than a similar situation where the default was reversed and where you would have explicitly had to act to buy those same shares with cash.

I'm on the flip side, I have around $3 million in stock from my former employer that I'm trying to sell off as tax-advantaged as I can. It's tough

My approach is to sell ESPP right away (as they come out of my pay check and I still get a nice bonus out of it) however I usually keep my RSU and progressively sell to limit the risk.

That worked well, I made a lot of money from sell at $100 stocks I got at $25.

That gain is just 'resulting'. More likely odds of success to sell 100% of RSUs and invest that money in some other company (or fund).

I do it the opposite way myself. If the stock is increasing there's a nice tax bonus on most ESPP plans by holding it 2 years from the start of the plan. If you have a lookback provision, by holding 2 years you shift more of your gains from ordinary income into long term capital gains (LTCG).

So a common example is a 6 month buying period with a lookback and a 15% purchase discount. Say the stock was $10 at the start of the period and ended at $12. The lookback period takes the lower of those two for purchase. A common misconception is that it is the lowest price anywhere in the 6 month purchase period, but no it's just the start and end values.

So if you sold right away you'd end up buying at min($10,$12)x85% = $8.50. You'd sell at $12 (so that's your cost basis) and have $3.50 in ordinary income tax per share.

Now say you waited 1 year to get the LTCG. In that time it went up to $13 a share. You sell and now you have $4.50 in gains. But you're still before the 2 year period so your cost basis is $12 and the split is $3.50 in ordinary income and $1 in LTCG.

Now say you waited 2 years. This is where the tax advantage happens. Your cost basis is adjusted to the min($10,$12) value. Even if the price is still at $13 when you sell your tax split is $1.50 ordinary income and $3 LTCG, because your new cost basis is $10.

Keep in mind when the stock declines over the purchase period this advantage completely evaporates.

Another thing to note on the timing. The clock starts ticking on LTCG when the stock is purchased into your account. But for the tax benefit is it from the start of the plan, when they start taking money out of your paycheck. Where I work the plan is annual, with purchases every 6 months. So on the first purchase of the period 6 months have already elapsed and I need to wait 18 months to get the tax benefit. On the second purchase 12 months have passed so I only need to wait 12 more months, which aligns with the LTCG period.

Let's say you were going to donate stock to charity from either of these sources (ESPP, RSU)

Is there any way to avoid taxation when it becomes yours to donate, or to be refunded the money used to pay taxes that you no longer owe as you don't own the stock?

Yes, you'd set up a Donor Advised Fund, transfer the stock to that fund, and sell it from within the fund, or donate the stock directly to an large established nonprofit that is capable of accepting donations of stock.

I don't think that's what the person is asking. He's asking if you can avoid ALL taxes on RSUs by donating all of it. And the answer is NO.

You can't transfer an RSU grant and when it vests, the taxes are automatically paid for by the company (RSU manager) selling 33% (varies) of the shares.

Once you have the shares you can do the above and can avoid taxes on the gains of post-tax shares.

Maybe, but

> donate, or to be refunded the money used to pay taxes that you no longer owe as you don't own the stock?

Would still be yes, as you can deduct the value of the stock, assuming you're over the standard deduction.

True. It's a discount on the tax, but you don't get it all back.

So, RSU = 100K (33K taxes), you get 67K after initial taxes.

You donate 67K, you get 22K in tax credit.

Government gets 11K in taxes even though you didn't see one penny from the RSUs.

No.

Donating appreciated stock is better than donating cash, but 1. only if you itemize 2. it can never save you money. You have to want to donate either way; it's just a slightly more efficient way to do that.

I am not an accountant or attorney, so you should do all of your own research. However any discussion or information about RSUs that doesn't mention an 83b election is at best incomplete.

You can't make an 83b election for RSUs. RSAs yes. Option grants for sure. RSU taxation is very straightforward compared to those. They count as W-2 income when they fully vest and turn into shares. There isn't anything to elect as 83b because they don't get any special tax treatment after that vesting date.

You appear to be confusing RSUs with stock options.

Actually it looks like RSAs. I didn't even apparently know that RSUs were different as I've always received RSAs and thought they were the same thing (and in fact they had been called RSUs, but the structure looks like RSAs as defined here)

A subtle point that confuses many: 83(b) election only applies to property that has been transferred to you but not vested.

> However any discussion or information about RSUs that doesn't mention an 83b election is at best incomplete.

You can't 83b RSUs.

This article misses the main "gotcha" for me with RSUs. A vesting event counts as a purchase for purposes of determining whether it was a "wash sale" (selling and then re-buying) or not. Not knowing this added insult to the injury of selling previously vested shares at a loss, since a big chunk of the potential loss deduction wasn't allowed.

The loss wasn't allowed in the current year, but it was added to basis of the remaining stock, so eventually the lower tax still happens.

Good point, though the result of my clever maneuvering is having to deal with a loss carry forward for a long time due to the amount involved.

I guess the bright side is that when I finally have some capital gains to report when I retire, I'll have something to offset them as the amount is large enough that the capital loss deduction allowed for ordinary income won't even be close to depleting it when I hit retirement age.

Which part did you not know?

The "what" part

The fact that this persons uses the term "push you into a different tax bracket" suggests they don't understand how tax brackets work.

I am not finding anything suggestive about it, except repetition. Tax brackets awareness is important when you have more thing going on besides your w2. Especially for things that can't wait till tax return due date, like Roth conversion.

the concept of additional income "push you into a different tax bracket" is a misnomer. Only the income above the bracket line gets taxed at the higher rate. There isn't a reason to avoid getting more income in a given year unless you have a way to defer it (like some retirement accounts allow)

In the context of the article, it makes sense. If you have a choice to sell a bunch of stock on either December 31 or January 1, and selling the stock would put you into a higher tax bracket, it makes sense to sell enough stock on December 31 to "fill up" your earlier year tax bracket, and sell the rest on Jan 1.

Or in a simpler use case, you know one year or the other will be a low income year, you sell the stock in that year.

Except in reality Jan 1 is always a holiday and Jan 2 is always a volatile trading day, so your tax savings may not be worth the risk of the price swing on the first trading day of the new year.

The context of the article is a tech employee getting ESPPs. Such a person is already nearing the top of the tax bracket anyway. It's at most going to mean two or three percent difference on just the capital gains. This is, for almost everyone, going to be a completely unnoticeable difference in practice.

Let's say you make $100,000 and a whopping $50,000 of it is RSUs and ESPPs. You've been very lucky and the stock portion is now worth $75,000. You sell. Your federal bracket has gone up by 2% and your California bracket has stayed the same. You will owe an additional $500 in taxes. This is just about the worst case scenario where you're not making that much for tech and your comp is exactly on the edge of a tax bracket and your comp is 50% equity and your company went up by 50% since vesting.

The thing being disputed isn’t timing etc. it’s the concept of being “pushed into” a tax bracket. In the US at the federal tax level your income is taxed in buckets.

If the brackets are 10,000 @5%; 100,000 @10%, if you make 100,000 your first 10,000 is taxed at 5% and the next 90,000 is taxed at 10%.

Outside of long/short term gains, all things being equal, the timing is not especially important

This is not true in New York State.

Are you saying New York has an income tax that does not feature marginal tax rates?

Yes, I am saying that.

New York state government website seems to disagree https://www.tax.ny.gov/forms/current-forms/it/it201i.htm#nys...

https://www.bogleheads.org/forum/viewtopic.php?t=247046 explains the situation (posted below).