What should I do with my company stock?

[Goldy]

My wife and I both work for the same company and have been saving our company stock which is now worth about 114k.  The stock produces a nice 4-5% dividend and has grown considerably over the past 2 years.  Due to vesting requirements I only have access to about 50k of the stock but continue gaining about 5k per quarter.

My original plan was to keep the stock until we get laid off and can keep our income low enough to not pay capital gains taxes on them.  The vesting shares are taxed immediately as income I believe.  Total NW is now 1.7 so it’s not a giant part of our portfolio but I also don’t see us getting laid off any time soon so i’m wondering if it might be prudent to reduce our exposure and pay the cap gains.

What would you do?

[thenextguy]

What does the rest of your portfolio look like? If this represents a small amount, I wouldn't worry about it. If it represents a large amount, I would definitely take the capital gains hit and diversify.

Edit: Whoops! You answered my questions already. If your NW is $1.7m, then I think there is less of a reason to diversify.

[robartsd]

I believe the vesting shares are considered income for tax purposes. This income is your cost basis for the shares. If you sell the shares right away there would basically be no capital gains.

Typical advice is to sell shares as soon as they vest then invest the funds according to your investment plan.

[Blackeagle]

Generally, I think holding on to stock in your own employer is a bad idea (if anything happens to the company you're exposed as both an employee and a shareholder). Doubly so since you and your wife both work at the same company.  However, with your net worth and the fact that this stock is just a small portion of your portfolio that's less of a factor.  You could get laid off and the company stock could go to zero and you'd still be doing pretty well.

[FINate]

Make sure you're clear on the cost basis. Are these RSUs that trigger a taxable event at vest? Oftentimes part of the vested shares are held for taxes, but you need to be clear on how exactly your plan works.

In either case, I'm not a huge fan of making investment decisions primarily for tax purposes. If you guys get laid off there's a good chance your company is not doing well and stock may decline more than just paying the taxes now. If you're otherwise thinking you'd like to diversify away from the company stock then I would just bite the tax bullet. Just my $0.02.

[VoteCthulu]

I would choose a number and sell when it was exceeded. It could be a percentage, like 5% of my investable assets, or a time frame, such as holding each stock dispersment for 2 years before selling it to invest in index funds.

That takes the emotion out of it, so I don't wonder "is now a good time to sell?" and get paralyzed by indecision or beat myself up for selling too early or too late.

[Goldy]

Make sure you're clear on the cost basis. Are these RSUs that trigger a taxable event at vest? Oftentimes part of the vested shares are held for taxes, but you need to be clear on how exactly your plan works.

In either case, I'm not a huge fan of making investment decisions primarily for tax purposes. If you guys get laid off there's a good chance your company is not doing well and stock may decline more than just paying the taxes now. If you're otherwise thinking you'd like to diversify away from the company stock then I would just bite the tax bullet. Just my $0.02.

My last pay stub shows a vested value of 5k in the earnings portion of the stub.  I always guessed that this meant the stock was treated like income and was taxed at my normal rate.  I’m curious how they calculate the cost basis if I were to sell a mix of purchased and vested.

[FINate]

Make sure you're clear on the cost basis. Are these RSUs that trigger a taxable event at vest? Oftentimes part of the vested shares are held for taxes, but you need to be clear on how exactly your plan works.

In either case, I'm not a huge fan of making investment decisions primarily for tax purposes. If you guys get laid off there's a good chance your company is not doing well and stock may decline more than just paying the taxes now. If you're otherwise thinking you'd like to diversify away from the company stock then I would just bite the tax bullet. Just my $0.02.

My last pay stub shows a vested value of 5k in the earnings portion of the stub.  I always guessed that this meant the stock was treated like income and was taxed at my normal rate.  I’m curious how they calculate the cost basis if I were to sell a mix of purchased and vested.

It sounds like vesting may be a taxable event, which would mean you were taxed on the 5k? Part of the vested stock could be withheld for taxes, but unclear without knowing the details. Under this scenario, you would have already paid taxes at vest and your cost basis would reset to the stock value at that point in time. If you hold and the stock price increases, then you'd owe capgains on the increase above cost basis when you sell. But you really need to talk to the person who admins the your stock plan.