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.
You should definitely sit it out till it turns into long term gain.
> 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
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
How do I establish primary residency in a tax-free state while I live in the Bay Area? Can I do it as long as I buy a property in those states?
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.
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.
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)
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 :(
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...
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.
With the current share price I really hope they took this advice