Author Topic: RSUs vesting soon - not sure how to proceed  (Read 3972 times)

dave__

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RSUs vesting soon - not sure how to proceed
« on: July 01, 2015, 04:28:32 PM »
Hey MMM,

My wife has RSUs that are vesting in a couple weeks and since this is the first time we've handled this situation we are quite unsure how to proceed. The value of the RSUs has increased about 40% over the past three-years. We would like to sell them right away - how do we go about doing that? Also, the company stock is at an all-time high currently and we are concerned about the taxes associated with the sale. Any input on that? If you need more details, please let me know!

Thanks.

MDM

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Re: RSUs vesting soon - not sure how to proceed
« Reply #1 on: July 01, 2015, 05:02:12 PM »
How you sell them depends on the specific program your company has.  They may be deposited into a brokerage and you would then use that broker's tools for the sale.  Ask your company HR/Benefits people for the details.

Appears you already agree with https://blog.wealthfront.com/manage-vested-rsus/ on the strategy.  If the company will do withholding for you, that's the easiest way to deal with taxes.  Otherwise you may have to send an estimated tax payment to the IRS to avoid underpayment penalty and interest.

Nice problem to have - good luck!

secondcor521

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Re: RSUs vesting soon - not sure how to proceed
« Reply #2 on: July 01, 2015, 07:10:28 PM »
Your company probably has a third party handle the RSUs for them.

In my case, for example, my company uses Morgan Stanley for my RSUs (and my stock options).  I go log in to that website and I can see all of my RSUs and my stock options.  When I want to sell, I can go into that same website or just call the customer service number and say, "Please sell all my RSU shares that just vested today."

Many plans will also allow you to go in before the shares even vest and you can ask them to sell all the shares as soon as they vest.

As far as taxes go, in my case Morgan Stanley always withheld for taxes from my proceeds and passed the withholding amounts back to my company and they included those amounts on my W-2.

If they don't withhold for taxes, you'll want to definitely see if you need to send in estimated taxes.  The value of the RSUs you receive should be treated as ordinary income I believe (average stock price on the day they vest * number of shares).

ZiziPB

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Re: RSUs vesting soon - not sure how to proceed
« Reply #3 on: July 02, 2015, 06:09:16 AM »
The RSUs will be taxed as ordinary income on the day they vest.  My employer does the withholding for me in that situation (they sell some of the stock to cover the taxes and deposit the rest into my brokerage account).  I am then free to sell the stock immediately or hold it for as long as I want.  The stock's basis will be the vesting stock price.  Assuming you sell immediately upon vesting at the same price, no additional tax will be due.  If you sell within the first year after vesting for a different price, you will have either a short term capital gain or loss; after one year it will be long term.

dave__

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Re: RSUs vesting soon - not sure how to proceed
« Reply #4 on: July 13, 2015, 12:43:34 PM »
Thanks everyone! Fortunately, the company sent out an email on how to handle this situation. Seems it's just like you said - everything is moved to a brokerage account and we can choose what to do from there. We are planning to sell immediately as the stock price is still high and the taxes will be handled automatically. Here's the important bit from the email:

Quote
The net cash amount, after taxes, will be deposited in your Account approximately 5-7 business days following the vest date.Also, you will receive a separate paystub associated with this vesting.

secondcor521

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Re: RSUs vesting soon - not sure how to proceed
« Reply #5 on: July 13, 2015, 12:58:29 PM »
Note that you will probably be paying federal, state, local, Social Security, and Medicare taxes.  Plus there will be some (probably minimal) brokerage fees for the sale transaction.

dave__

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Re: RSUs vesting soon - not sure how to proceed
« Reply #6 on: July 13, 2015, 01:01:01 PM »
Note that you will probably be paying federal, state, local, Social Security, and Medicare taxes.  Plus there will be some (probably minimal) brokerage fees for the sale transaction.
Yeah, I figured it'll get the full gamut of taxation. Either way, it's better than a poke in the eye with a sharp stick. :)

secondcor521

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Re: RSUs vesting soon - not sure how to proceed
« Reply #7 on: July 13, 2015, 04:14:03 PM »
Indeed it is.  I just remember being surprised at the SS and Medicare taxation when my first ones vested, so I thought I'd mention those particularly.

johnny847

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Re: RSUs vesting soon - not sure how to proceed
« Reply #8 on: July 13, 2015, 05:19:18 PM »
Note that you will probably be paying federal, state, local, Social Security, and Medicare taxes.  Plus there will be some (probably minimal) brokerage fees for the sale transaction.
Yeah, I figured it'll get the full gamut of taxation. Either way, it's better than a poke in the eye with a sharp stick. :)

Glad to hear you say this. I see a fair number of people on this forum who let the tax tail wag the dog.

Though as secondcor521 said it is strange about FICA withholding, but rsu taxation rules are not the standard capital gains rules so all bets are off haha.

seattlecyclone

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Re: RSUs vesting soon - not sure how to proceed
« Reply #9 on: July 14, 2015, 12:21:43 AM »
Though as secondcor521 said it is strange about FICA withholding, but rsu taxation rules are not the standard capital gains rules so all bets are off haha.

Not sure what you mean by this...standard capital gains rules apply to sales of RSU shares just as any other taxable shares. However since the value of the shares on vesting day counts as regular income, this amount then becomes your cost basis. This means that if you sell soon after vesting, your capital gain (or loss) should be negligible. Let me repeat: deferring taxes is not a reason to hold on to newly-vested RSU shares. You are taxed on the full value on vesting day whether you keep the shares or not. By selling them immediately, you get the opportunity to invest in a more diversified investment and you will owe essentially no capital gains tax on the transaction.

Do pay attention to any restrictions your wife's company imposes on trading; some companies only let you trade company stock for a few weeks per quarter, to minimize risk of people doing illegal insider trading.
« Last Edit: July 14, 2015, 12:23:57 AM by seattlecyclone »

johnny847

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Re: RSUs vesting soon - not sure how to proceed
« Reply #10 on: July 14, 2015, 06:14:21 AM »


Though as secondcor521 said it is strange about FICA withholding, but rsu taxation rules are not the standard capital gains rules so all bets are off haha.

Not sure what you mean by this...standard capital gains rules apply to sales of RSU shares just as any other taxable shares. However since the value of the shares on vesting day counts as regular income, this amount then becomes your cost basis. This means that if you sell soon after vesting, your capital gain (or loss) should be negligible. Let me repeat: deferring taxes is not a reason to hold on to newly-vested RSU shares. You are taxed on the full value on vesting day whether you keep the shares or not. By selling them immediately, you get the opportunity to invest in a more diversified investment and you will owe essentially no capital gains tax on the transaction.

Do pay attention to any restrictions your wife's company imposes on trading; some companies only let you trade company stock for a few weeks per quarter, to minimize risk of people doing illegal insider trading.

The fact that the value of the shares gets added to taxable income is what I was talking about.

seattlecyclone

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Re: RSUs vesting soon - not sure how to proceed
« Reply #11 on: July 14, 2015, 08:12:45 AM »
The company is paying you. It counts as income just the same whether they pay you in cash or shares. I always tell people to think of RSU taxation as being exactly the same as if the company paid you a cash bonus and then you immediately used all the cash (after tax withholding) to buy company stock. When you sell you will have to compute capital gains taxes just like any other stock sale, but people get more worried about the amount of this tax than they should, because they assume they'll be taxed on the entire value again.