RSU: Sell at Vest or Hold? The Decision Framework
When RSUs vest you've already paid ordinary income tax on the FMV. Holding past vest is a pure portfolio-allocation decision, not a tax decision.
The question comes up at every tech-employee financial planning conversation: my RSUs vested today, should I sell or hold? The answer is almost always sell — and the argument is simpler than most people realize.
The tax math is already done at vest
When RSUs vest, the fair market value of the shares is added to your W-2 wages and taxed as ordinary income. Federal, FICA, and state tax all apply. After taxes, the shares sit in your brokerage account with a cost basis equal to the FMV at vest.
Selling immediately at vest produces zero additional tax. There's no gain to recognize. The only tax that has happened is the ordinary-income tax already triggered by vesting.
Holding past vest accrues capital gains (or losses) on subsequent price movement. If you hold for more than 1 year, post-vest appreciation qualifies for the lower long-term capital gains rate (15-20% federal). If you sell within a year, post-vest gains are short-term and taxed at ordinary rates.
The concentration-risk argument
Here's the part that matters more than tax. Most tech employees with several years of vesting end up with 20-50% of their net worth in employer stock. That concentration is the largest avoidable risk in their portfolio.
Single-employer stock is highly correlated with your job income. If the company has a bad quarter, the stock drops AND you may face layoffs AND your future RSU grants vest at lower value AND your bonus shrinks. All four risk factors hit simultaneously.
By contrast, selling at vest and reinvesting in a broad index fund decorrelates your investment portfolio from your employment. A market downturn affects the index but doesn't come bundled with your job risk.
When holding can be defended
Three narrow cases. First: you genuinely have an investment thesis on the company AND your equity-comp position is a small share of your overall investable wealth. Most people who think they have a thesis don't — they have an availability-bias view of an employer they spend 50 hours a week thinking about.
Second: blackout windows or insider-trading restrictions prevent immediate sale. Set up a 10b5-1 plan during an open window so future vests sell automatically.
Third: small vest sizes where transaction costs or the friction of selling exceeds the diversification benefit. Rare in practice with modern $0-commission brokerages.
The default action
Sell at vest. Reinvest in a low-cost broad-market index fund. Reduce concentration risk. Keep holding only what you would freely choose to BUY at the current price — and most equity-comp employees would not voluntarily allocate 30% of their portfolio to a single tech stock if given a fresh choice.
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Frequently asked
When RSUs vest, the fair market value is added to your W-2 income — you're already taxed at ordinary rates on the full vest value. Your cost basis after vesting equals the vest-day FMV. There's no tax benefit to holding; subsequent appreciation is the only thing that gets capital-gains treatment, and that requires waiting at least 1 year. Meanwhile, holding concentrates your net worth in a single employer.
The LTCG advantage applies only to gains AFTER the vest date. If you sell at vest, there's no gain to tax (cost basis equals sale price). If you hold and the stock rises 20% over a year, that 20% gain qualifies for LTCG (15-20%) instead of ordinary rates. But you took on 100% of the downside risk to capture 5-10 percentage points of tax savings on the upside. Risk-adjusted, it's rarely worth it.
If your employer's stock represents more than 10-15% of your investable net worth, you're carrying concentrated risk. Single-employer stock can drop 50%+ in a downturn while broad indexes drop 20%. Combined with the income risk of working there (a 50% stock drop often correlates with layoffs), concentration in employer stock is the largest avoidable financial-planning mistake at tech firms.
Three: (1) you have an inside view AND material non-public information allows you to plan trades via a 10b5-1, (2) you genuinely believe the stock is undervalued AND have substantial diversified holdings outside the position, or (3) trading window restrictions prevent you from selling. Otherwise, sell at vest.
An SEC Rule 10b5-1 plan lets insiders set up an automatic trading schedule (e.g., sell 25% of each vest immediately) outside of trading windows and without future discretion. Once set up during an open window, the plan executes through subsequent blackout periods. Most public-company employees subject to insider-trading rules use 10b5-1 plans for systematic RSU sales.
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