Can I “invest” my vested RSU’s within a year of vesting without getting hit with short term capital gains tax?
I don’t understand this stuff very well, but my understanding is that after my stocks vest, I can’t touch them for a year or else I’ll get charged short term capital gains tax (STCGT). However, after a year, it will become long term capital gains tax, which is much less expensive.
I’ve heard people say that they diversify their investments in order to be less exposed to the extreme highs and lows that AMZN is going through at the moment. However, is it true that you can’t touch your vested stocks for at least a year after the vest (or else you’ll have to pay STCGT)?
Stockplanconnect gives me the option to automatically sell my stocks (or transfer them to my investment account) as soon as they vest. Why would anyone do that? Is there some way to avoid STCGT without waiting a year (e.g., if you’re “investing” rather than just selling them and turning them into cash)?
I guess another way of asking this is: if I want to diversify my investments, do I have to sell my stocks and turn them into cash, and then use that cash to invest or purchase other stocks (even if using robo-traders like Wealthfront), or is there some other way of diversifying without waiting a year to avoid STCGT?
TIA!
TC: $410k
YOE 15
#personalfinance #investments
comments
If you sell as soon as you vest, you avoid any gains and hence the tax on the gains.
So vest, sell, buy something else
RSUs = income at time of vest, no way around that, just sell and diversify. If you hold them and make gains after vest you owe capital gains tax on that portion.
ESPP = more complicated tax situation, but you don’t pay any tax until you sell. If you sell immediately you pay income tax on discount (no capital gains because there are no gains). If you hold for a year you pay income tax on discount+ long term capital gains, and if you hold for 2 years you pay income tax on the discounted price of the offering date (beginning of period) regardless of if the price went up during lookback+long term capital gains.
TL;DR: sell RSUs immediately no tax implications and you diversify. ESPPs can be held for 2 years from offering date for better tax treatment.
Now, AFTER your shares are deposited in you account, if they appreciate, you are taxed on that too. If you keep them >1year the taxed on the appreciation at the long term rate.
The bottom line is that none of this matters much unless you have appreciation AFTER the shares are deposited.
Same idea applies to Employee stock purchase programs (ESPP), except the income piece is the difference between what you paid and what the shares were worth on the day you acquired them.
if you don’t sell immediately you pay long term capital gain tax