RSU sale strategy after IPO lockup period expiration

Pinterest trebled
Aug 28 22 Comments

Hey guys,
My ex-company (Pinterest) IPO'ed this year and all my RSUs vested on the IPO date (mid-April-2019). This is the first time I'll be receiving a decent amount of money in bulk so I'm trying to read up on how to approach liquidating my vested RSUs. I'm hoping this thread can yield a good discussion and provide some guidance from more (fortunate and) experienced folks who may have gone through a similar process in the past.

Specifically I would like to pick your brain about how you have to plan for a tax-optimized sell strategy. Problem with RSUs is that they all vest at the same time on the IPO date (double trigger RSUs). Combined with my regular income from my current job, it results in a huge tax burden already. Also, luckily Pinterest shares are up considerably since the IPO date - keeping my fingers crossed that it stays that way since I had very low expectations from my ex-company. If I were to sell them immediately right after the IPO lockup period ends, than all the gains (assuming it stays that way) are subject to short-term capital gains tax, which is taxed at the same (very high) income tax levels.

I found a few articles from financial advisers which provide some guidance on how and when to sell. In case other people are interested here are the links:
https://flowfp.com/after-uber-lockup/
https://kbfinancialadvisors.com/ipo-rsu-when-to-sell-based-on-share-price/

After this long intro, finally time for questions and discussion points:
1. Selling ALL shares right after the lock-up period expiration and taking a short-term gains hit vs waiting for 6 more months to at least reduce Federal tax burden by %13 at the risk of stock price going down. How should I think about these approaches? How did you plan for it if you went thru this process before?
2. My tax situation: Don't own a home, don't plan to buy one anytime time soon where I reside (which is California), don't have kids. Is there anything that can be done about the tax burden?
3. When I eventually liquidate, my plan is to invest the gains in a simple and low-cost index fund-based diversified portfolio. Given this plan do you guys think consulting a financial adviser has any added value? Do they really provide any added gain and clever strategies to increase the value I can get out of this process?
4. Is there anything else that I should be planning for?

Thanks in advance for all your help.

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TOP 22 Comments
  • Microsoft / Product
    FeatherDot

    Microsoft Product

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    Amazon
    FeatherDotmore
    For your decision making you should only consider the difference in the current stock price and the price at which you vested. You should sell now if you think the stock price is going to drop by more than your marginal tax rate minus the capital gains rate applied to the delta mentioned above. That’s your break even point. Of course it’s not all or nothing. You can hedge and sell some now and some later.
    Aug 28 0
  • DoorDash M7sU5jQi
    There is no correct answer for this question. There is more to it than just capital gains: If you were to sell everything when lockup expires and the stock doubles in the next 6 months, would you regret it? If I was in your spot, I would definitely take at least half of the money off the table. Two reasons: 1. The stock has done well after IPO and I should capitalize on realizing gains for my hard work. 2. Given the uncertainty around trade wars and economy, you don't want too much of your money sitting in equity, let alone the equity of one company.

    Another option to consider is to wait until Jan 1st to sell some portion of shares (instead of selling everything on lockup expiry). I'm guessing you can do it because blackout periods won't apply to you anymore. That way, you might end up paying lower marginal tax rate, even though you will get taxed at ordinary income (applies only if your income is below the max tax rate)
    Aug 28 5
    • Square / Legal
      Prothrkef

      Square Legal

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      Facebook, Google
      Prothrkefmore
      If (s)he is still employed there they will still have rolling blackout periods.
      Aug 28
    • DoorDash M7sU5jQi
      I thought OP mentioned they don't work for pinterest anymore
      Aug 28
    • Square / Legal
      Prothrkef

      Square Legal

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      Prothrkefmore
      Ah you are correct :)
      Aug 28
    • Pinterest trebled
      OP
      Absolutely agree that there is no single answer. That’s why I’m hoping the discussion brings out different perspectives such as yours.

      I’m also concerned about the uncertainties in equities due to trade issues. I think waiting for Jan 1st could be a very good trade-off. Thanks a lot for a great answer.
      Aug 28
    • DoorDash M7sU5jQi
      Sounds good. I would still consider selling some on lockup expiry so that you're getting some liquidity right away. The remainder you can split between Jan 1st or even waiting for long term cap gains.
      Aug 28
  • Square / Legal
    Prothrkef

    Square Legal

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    Prothrkefmore
    Since you have RSUs and no real estate expenses, pretty much the only thing you can do to lower your tax bill is 1) lower your w2 income before selling, 2) establish primary residency in a tax free state before selling, 3) wait at least 1 year before selling for LTCG
    Aug 28 6
    • Pinterest trebled
      OP
      Don’t quote me on this but I don’t think simply buying a property works. As long as you earn income in CA for more than a certain amount of time (more than half a year?) you will owe CA taxes. BTW, if you also have RSUs then the taxes you owe this year for the already vested shares will still be taxed by CA if that is where your residence was for the year. You can’t do anything about it. But if you somehow change your primary residence before you sell your shares, than at least there is an opportunity for reducing your state tax liability.
      Aug 28
    • Intel
      I_am_VTSAX

      Intel

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      💲💲💲💲💲💲💲💲💲💲💲💲💲💲💲
      I_am_VTSAXmore
      It is not that simple nor fast and the government is on top of these moves. You'd have to move/buy in that lower tax state (nv, fl, tx, etc) and prove hard core that you spent more than 6mos of the year there. All for maybe 10% savings but with the risk your stock value doesnt drop. Not worth it IMO. Spend a grand or two on a FEE ONLY FA and sit down and talk thru options. As for the investing side, dump into VG or your chosen investment bank and index fund away. As my handle shows I'm all in on VG and VTSAX.
      Aug 28
    • Square / Legal
      Prothrkef

      Square Legal

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      Prothrkefmore
      The answer is you move from CA. It’s not as simple as buying property outside of CA, you also have to move.
      Aug 28
    • Salesforce qcHm78
      It makes no difference if you move. You pay tax on the state where the RSU vested. If you have outstanding shares waiting to vest that is different however playing stupid games with trying to trick the IRS as to where your true primary residence is will surely win you stupid prizes, like an audit or penalty
      Aug 28
    • Square / Legal
      Prothrkef

      Square Legal

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      Prothrkefmore
      That is correct, you pay tax to the state where it first vested. But in this case they now are holding the vested shares that themselves have a substantial gain. This gain, whether long term or short term, will also be taxed when you sell. Residency can have a major impact on this second taxation event, depending on the realized value increase.
      Aug 29
  • Spotify / Eng qbeforeu
    > When I eventually liquidate, my plan is to invest the gains in a simple and low-cost index fund-based diversified portfolio. Given this plan do you guys think consulting a financial adviser has any added value?

    No, unless you want to pay someone to tell you what you already know
    Aug 28 0
  • Pinterest kito
    I got about the same case like OP but we have a house and kids. But thinking about to sell and vtsax at some point but not all in one wholesale after lock up expire. We gonna got burden in tax if we do that. But at least we need to sell to cover tax because the 22% withhold is not enough :(
    Sep 3 2
    • DoorDash M7sU5jQi
      At least, your company's stock is going up
      Sep 3
    • Pinterest okitoo
      Yep I still believe that it just beginning ...somehow have feeling to keep it for long term investment but still need diversify.
      Sep 4
  • Uber jdvks
    Curious what Pinterest folks ended up deciding to do today? Seems lockup expiration didn't affect the price too much except when the market opened.
    Oct 15 1
    • Pinterest trebled
      OP
      Lockup expiry hasn’t seemed to have much of an affect for two reasons IMHO: 1) stock price has already been dropping over the last few weeks, partly because of the market awareness and anticipation that some new shares would be available on Oct15, 2) most of the shares are held by institutional investors, not employees, so those may have a firmer belief in the company’s long term prospects and higher tolerance for risk to be able to hold on to the shares.

      I don’t know what other stock holders are doing but I haven’t sold anything yet. My plan is to wait for a couple of weeks and set a limit order (@$27 target) on Schwab to sell ~%20 before the Q3 earnings call. I’m betting (and keeping my fingers crossed) that the typical seasonality of the ads business works in our favor (Q3 is usually a strong revenue quarter for ads business). I’m planning on selling another ~%20 after the earnings call if nothing very surprising happens. What I do with the rest of my stock depends on the market and my ability to remain calm :). My intention is to at least wait until Jan1st to carry over some of the tax burden to the next fiscal year. We will see...
      Oct 16
  • You should definitely sit it out till it turns into long term gain.
    Aug 28 0
  • Apple pivoting
    Wait at least a year so that you can have a lower tax rate since it will be long-term capital gains tax at that point.
    Aug 28 0

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