Should I Sell My Company Stock? The 10% Rule of Thumb

Priya, a 38-year-old single software engineer in Austin, holds $400,000 of her employer’s stock — about 45% of her $890,000 investable net worth. Her base salary, her bonus, and her future vesting RSUs all come from the same company. The standard concentration ceiling is 10–15% of investable net worth in any one stock. To get to 15%, Priya needs to hold roughly $133,500 and sell about $267,000. The question she keeps stalling on is the tax bill. Here is the answer: most of her position is recently vested RSUs with a cost basis equal to their vest-day value, so the federal capital gains tax on selling them is close to $0. The downside she is carrying by not selling — a single-stock crash that takes both her portfolio and her job — is far larger than any tax she would pay to diversify.

The 10–15% concentration ceiling, and why your real exposure is higher

The rule of thumb that wealth managers cite — Candor, SoFi, myStockOptions, Brighton Jones all land in the same band — is that no single stock should exceed 10–15% of your investable net worth. Above that, the volatility of one company starts to dominate your entire financial picture. A diversified S&P 500 index has historically fallen 50%+ in a year only in extreme crises; individual stocks do it routinely, and many never recover.

For an employee, the true exposure is worse than the dollar figure suggests, because your human capital and your financial capital are correlated. Your paycheck depends on the company. Your unvested equity depends on the company. And your portfolio depends on the company. When the firm stumbles, all three fall together. Enron and Lehman Brothers employees did not just watch their 401(k) balances evaporate — they lost their jobs in the same week. That is why a 30% allocation to your employer is riskier than a 30% allocation to an unrelated stock you happen to like.

The decision rule is simple to state and hard to execute emotionally: set a target concentration ceiling, sell down to it on a fixed schedule, and prioritize lots already at long-term rates. The schedule matters because it removes the “I’ll sell after the next earnings call” trap that keeps people concentrated for years.

The trade-off: a known tax cost vs. an unknown crash

People hold concentrated stock because selling feels like a guaranteed loss (the tax) to avoid a hypothetical one (the crash). Reframe it. The tax is a fraction of the gain; the crash can be the whole position. Here is what selling appreciated shares actually costs in federal tax for 2026.

The top combined federal rate on a long-term gain is 23.8% (20% LTCG + 3.8% NIIT). So even in the worst federal case, selling a fully appreciated $100,000 position with a $0 basis costs $23,800 — and you keep $76,200 in cash you can diversify. Compare that to the position falling 60% while you wait: you lose $60,000 and owe nothing, because there is no gain left to tax. A tax bill is the cost of a win. A crash is just a loss.

The cost-basis point that changes the whole calculation for RSU holders

Here is the fact that flips most people’s intuition: RSUs and exercised options already had their value taxed as ordinary income. When an RSU vests, the full fair market value is reported as W-2 wages and that value becomes your cost basis. When you exercise a non-qualified stock option, the bargain element is taxed as ordinary income and added to basis.

That means if you sell those shares promptly after vesting or exercise, your additional capital gain is close to zero — the price has barely moved from your basis. You already paid the tax that mattered (the ordinary-income hit at vest). Holding the shares afterward is not a tax strategy; it is a pure, undiversified bet that this one stock beats the market, made with money that was fully taxed already.

For Priya’s $267,000 sell-down, suppose $180,000 is RSUs vested in the last three months with basis near the current price (say $175,000), and $87,000 is older shares with a $30,000 basis. Her taxable gains are roughly $5,000 (recent RSUs) + $57,000 (older lots) = $62,000. As a single filer with high wages, that gain sits in the 15% LTCG bracket plus 3.8% NIIT = 18.8%, for a tax of about $11,656 — under 4.4% of the $267,000 she moves to safety.

The toolkit: four ways to diversify cheaply

Selling down to your ceiling does not have to be one big taxable event. Sequence these levers from cheapest to most flexible:

1. Sell newly vested RSUs at vest. Basis equals vest-day value, so a same-week sale realizes almost no gain. This is the single most efficient way to keep concentration from rebuilding after you trim. Treat every future vest as cash you immediately reinvest in an index fund.
2. Harvest long-term lots in the 0% LTCG bracket. If your taxable income (after deductions) leaves room under $48,350 single / $96,700 MFJ, the gain that fills that room is taxed at 0%. Low-earning years, sabbaticals, or early retirement are prime windows. Sell the appreciated lot and rebuy a diversified fund to reset basis higher at no cost.
3. Donate low-basis shares. Give appreciated shares held over a year to a donor-advised fund or charity. You skip the capital gains tax entirely and deduct the full fair market value, up to 30% of AGI for appreciated stock (IRC §170(b)). This is the only lever that removes the position without ever realizing the gain.
4. Spread sales across tax years. If selling all at once would push you from the 15% to the 20% LTCG breakpoint or trigger NIIT, split the sales over two or three Decembers and Januaries to stay under the threshold each year.

Insiders: the 10b5-1 plan that lets you sell through blackout windows

If you are an officer, director, or 10% owner — or any employee who regularly has material nonpublic information (MNPI) — you cannot just log in and sell. Trading on MNPI is illegal, and your company’s blackout windows lock you out for large stretches of the year.

The solution is a Rule 10b5-1 plan: a written contract you set up while you do not have MNPI, specifying in advance the amount, price, and dates (or a formula) for future sales. Once it is in place, the broker executes the trades on the schedule automatically — even during blackout periods — because you committed to them when you had no inside information. Key SEC requirements after the 2023 amendments:

• Cooling-off period: directors and officers must wait the later of 90 days after adoption or 2 business days after the next quarterly results filing (capped at 120 days) before the first trade; other employees wait 30 days.
• Good faith and no overlapping plans: you generally cannot run multiple overlapping plans, and you certify you are not aware of MNPI at adoption.
• One single-trade plan per 12 months for one-shot sales.

A 10b5-1 plan is the mechanism that turns “sell down to my ceiling on a schedule” from a goal into an automatic process you cannot talk yourself out of when the stock pops.

What most people miss: the “if I had cash, would I buy it?” test

The single most useful reframe in concentration decisions is this question: if your $400,000 of company stock were instead $400,000 in cash today, would you spend all of it buying that one stock? Almost nobody says yes. They would buy a diversified portfolio. The only thing stopping them from doing exactly that is the tax cost of selling — and we just established that cost is usually single-digit percentages, while the answer to “should I have 45% of my money in one stock” is clearly no.

Three related blind spots:

• People anchor to the purchase price, not today’s value. “I’ll sell when it gets back to $80” is the stock controlling you. The market does not know or care what you paid. Decide based on what the position is worth now and what risk it adds.
• They forget RSU value was already taxed. Holding vested RSUs to “avoid tax” avoids nothing — the W-2 tax already happened. You are only deciding whether to keep betting on one stock.
• They ignore the correlation with their paycheck. A diversified investor who gets laid off still has a stable portfolio to lean on. A concentrated employee loses the job and the savings at the same time, exactly when they need the cash most.

A worked sell-down schedule

Priya sets a 15% ceiling ($133,500) and a 24-month glide path. She is single, earns $210,000 in W-2 wages, and is therefore over the $200,000 NIIT threshold, so long-term gains face 15% + 3.8% = 18.8% federal.

Total federal tax to move $267,000 out of single-stock risk: about $11,656, or 4.4% of the proceeds. Texas charges no state income tax, so that is her full bill. Had she been a California resident, the state would tax the $62,000 gain as ordinary income at roughly 9.3%–10.3%, adding about $6,000 — still well under 7% of the amount diversified. Either way, the cost of de-risking is a rounding error against a position that could fall by half.

The decision lever

Pick your ceiling — 10% if you want to be conservative, 15% if you have high conviction in the company — and write down the dollar figure that ceiling represents today. Anything above it gets sold on a fixed schedule, starting with the lots that cost the least tax to sell: newly vested RSUs first (near-zero gain), then long-term lots, harvesting any 0%-bracket room and donating your lowest-basis shares. If you hold MNPI, the schedule lives inside a 10b5-1 plan so it executes regardless of blackout windows. The lever you control is not the stock price — it is whether you let a schedule diversify you automatically, or let inertia keep your paycheck and your portfolio riding on the same company.