Executive Summary
Most professionals treat their RSUs like a bonus and let them pile up in company stock. RSUs are valuable, so that's not the problem. The problem is that a lot of people never make a deliberate decision about what happens after the shares vest.
This article covers how RSUs are taxed at vesting and at sale, what concentration risk means, and the range of choices people weigh once their shares are theirs. Nothing here is a recommendation. It's background and details to help you ask sharper questions about your own situation.
If you work in tech or are a high-income professional, RSUs probably show up in your account like clockwork. Every vesting date, more shares land. And if your company has done well, you've watched that pile grow into a real number.
So you hold. The stock's been good to you, and selling feels like walking away from something. Most people I talk to are doing exactly this, and they're smart, successful people who've done well for a reason.
Here’s the real question: do you have an actual strategy for those RSUs? Or are they just accumulating because you were never sure what else to do with them?
Those are two very different situations.
What's the most common mistake people make with RSUs?
Most professionals think of their RSUs as stock. And they are stock. But the way the IRS treats them, they're really income. That's why you owe ordinary income tax on them the moment each share vests, the same as you would on a bonus. (See the IRS Equity (Stock) - Based Compensation Audit Technique Guide)
Most of the people I work with already know this. They've been at their companies five, ten years or more, and they've paid the taxes. So the trouble usually isn't confusion about the tax bill.
What trips people up is that no one ever made a decision about what comes next. The shares vest, they sit there, and the money keeps stacking up in one company's stock year after year without anyone asking whether it’s helping you reach your long-term goals.
Why is holding a lot of one company's stock a bigger risk than it feels like?
There's a term for this. It's called concentration risk, and it means a large share of your money is riding on one company.
Here's why it matters.
When most of your liquid savings sits in a single stock, you feel every move that company makes. Individual stocks can fall sharply over short stretches of time, and large, well-known companies aren't exempt from that. If that one stock is where most of your money lives, you feel the full weight of the move. There's nothing else in your investment mix behaving differently at the same time.
There's an emotional side too. When your net worth is tied to one company, your feelings get tied to it as well. You check the price constantly. A bad week for that company can feel personal. You're never quite sure whether to buy, sell, or hold, so you end up frozen, and being frozen keeps your money in the exact position that was worrying you in the first place.
How are RSUs taxed when they vest and when you sell?
This part is helpful to understand clearly, so let me walk through the mechanics.
When your shares vest, the value on that day is taxed as ordinary income. That part you already know.
What happens after that is where choices show up.
Here's a simplified example, using round numbers to show how the math works rather than to predict any result.
Say a share vests at $100. From that point forward, any additional gain or loss is treated as a capital gain when you sell.
● If you sell within a year of vesting, any growth is taxed at short-term capital gains rates. So if that $100 share moves to $105 and you sell a few days later, the $5 of growth is taxed at short-term rates, which match ordinary income rates.
● If you hold that same share for more than a year after it vests, that $5 of growth is taxed at the long-term capital gains rate instead, which is lower.
(See the IRS guidance on capital gains and holding periods)
On one single share, that timing difference is small. Across a large position over several years, it can add up. Knowing which side of that line you're standing on before you sell is part of making an informed decision.
And remember, tax rules change, and your situation has details no article can account for. Please review your own circumstances with a qualified tax professional.
What are your actual options once your RSUs vest?
This is the part a lot of people forget. You have choices.
When someone comes to me holding a large pile of company stock, my first question is simple. "Is this by design? Or is it just because nobody told you there were other options?"
Very few people say it's by design. Most say some version of, "I didn't really know what to do with it, and I didn't want to miss out if the company kept doing well."
So here are the paths people generally look at.
- Diversifying the Position.
Some people choose to sell out of the concentrated stock and reinvest across a broad mix of investments spread over many companies. The idea is to spread exposure so that no single company drives the entire outcome.
Any sale of appreciated stock has tax consequences, and those are worth mapping out ahead of time rather than discovering afterward. It’s also worth noting that diversification does not guarantee a profit or protect against loss.
- Hedging with something like a collar.
For someone who wants to keep holding the shares, there are option strategies designed to limit how far a position can fall. A collar is one of them. The tradeoff is that it also caps some of the upside, it carries its own costs, and it can shift the timing of tax consequences.
Option strategies involve significant risk, aren't suitable for every investor, and require a separate approval process. Anyone considering one should read the Characteristics and Risks of Standardized Options and talk it through with a professional who knows their full picture.
- Exchanging into an index-tracking structure.
There's a third, more complex option that converts a concentrated position into something that tracks a broad index. It moves the outcome from depending on one company to depending on one index, which is a different question from whether it's the right fit for a given person. These structures have their own costs, lockup terms, and tax treatment.
For a lot of people, the conversation ends up centering on the first two options listed above.
What does concentration risk look like in real life?
Here's a hypothetical example. It's illustrative only and doesn't describe any specific client or account.
Picture someone with nearly all of their liquid savings sitting in one company's stock. Not most of it. Almost all of it.
Their emotions ran on the same track as that share price.
● They'd sit in a meeting with their advisor fully on board with selling some of the position and spreading it out.
● Then they'd get off the call, watch the price for a few days, and change their mind.
● When the stock dropped hard, they'd call upset, asking why nobody saw it coming.
The honest answer is that nobody can predict what a single stock is going to do. That uncertainty is the whole reason people diversify in the first place.
What that story is really about isn't the share price. It's the stress, the second-guessing, and the feeling of being stuck inside a loop of indecision. For a lot of people, spreading a position out has as much to do with how they sleep as it does with the math.
What does a coordinated plan look like when RSUs are part of it?
Say you're a high earner with RSUs, a 401(k), and you have an interest in owning real estate someday. What could the whole picture look like?
For me, it comes down to two things.
First, a plan you can actually see.
That means a projection showing roughly what financial independence could look like for you, built on assumptions you can inspect and adjust rather than a vague hope. Any projection is hypothetical. It isn't a promise, and actual results will differ, sometimes by a lot. The value isn't the number at the end. It's being able to look at a variety of scenarios based on an assumption and watch what happens.
Second, planning for what could interrupt it.
Things like a lawsuit, a disability, or an early death can knock a plan sideways. Insurance and legal structures are the tools people use here, and each one comes with its own terms, costs, exclusions, and limits that deserve a close read.
But here's the connection back to your RSUs. A projection is only as useful as the assumptions underneath it, and it's hard to build reasonable assumptions when most of your money depends on one company. Nobody knows where any single business will be in ten years.
Research offers some perspective on this. A study of companies added to the S&P 500 between 1989 and 2019 found that, on average, newly added companies went on to underperform comparable companies that were never added to the index, and the difference persisted over long periods.(You can review that study here)
That's a historical finding about averages. Past performance does not indicate future results, and it says nothing about what any particular company will do. What it does illustrate is how hard it is to build a dependable plan around the assumption that one company will keep winning.
Good questions to ask before your next vesting date
I don't know your situation, so I'm not going to tell you what to do with your shares. But these are the questions I would recommend finding the answers to:
● Do I actually know what percentage of my net worth sits in one company right now?
● Is that percentage the result of a decision I made, or the result of never deciding?
● If that stock had a genuinely bad two years, would my plans still work?
● If I want to keep holding some of it because I believe in the company, what's my ceiling, and how did I arrive at that number?
● What's my plan for the next vesting date, before it shows up?
There's no universal right answer to any of these. The answer depends on your income, your tax situation, your timeline, your other assets, and how much volatility you can honestly live with. That's exactly where we come in.
Frequently Asked Questions
Do I have to pay taxes on RSUs even if I don't sell them?
Yes. RSUs are generally taxed as ordinary income the moment they vest, based on the share value that day, whether or not you sell. The IRS treats vested RSUs as compensation, similar to a bonus. If you later sell for more than the vesting-day value, the additional gain is generally taxed as a capital gain. Your specific treatment can vary, so confirm with your tax professional.
Should I sell my RSUs as soon as they vest?
There's no answer that fits everyone, and this article isn't the place to get one. What's worth understanding is the mechanics: because ordinary income tax generally applies at vesting, selling shortly afterward often means little additional gain or loss relative to the vesting-day value. Whether selling makes sense for you depends on your full financial picture, your other income, your goals, and your tax situation. That's a conversation to have with an advisor who can see all of it.
What's the difference between short-term and long-term capital gains on RSUs?
It comes down to how long you hold the shares after they vest. Sell within one year of vesting, and any growth is generally taxed at short-term rates, which match your ordinary income rate. Hold longer than a year, and that growth generally qualifies for the lower long-term capital gains rate.
How much company stock is too much?
There's no regulatory threshold and no universal number. What matters is how much of your total financial picture depends on one company, and whether your plans would still hold together if that company had a rough stretch. That's a personal question, and it's worth working through with someone who can see your whole balance sheet rather than applying a rule of thumb you found online.
What's a collar strategy, and is it right for me?
A collar is an options strategy designed to limit how far a stock position can fall, with the tradeoff that it also caps some of the upside and can shift the timing of tax consequences. Options involve significant risk and aren't suitable for every investor. Whether a collar fits depends entirely on your situation, your holdings, and your objectives, so it's something to review carefully with a licensed professional.
Wondering whether your RSUs are actually working toward the life you want?
CLICK HERE to schedule a quick intro call to talk it through with our team.
We work with tech professionals and executives who have real equity and no strategy behind it, and we'd be glad to help you think yours through.
This content is for educational and informational purposes only. It does not constitute tax, legal, or investment advice, and it is not a recommendation to buy, sell, or hold any security or to adopt any investment strategy. Investing involves risk, including the possible loss of principal. Diversification does not ensure a profit or protect against loss. Options strategies, including collars, involve significant risk, are not suitable for all investors, and require review of the Characteristics and Risks of Standardized Options prior to investing. Any examples shown are hypothetical and illustrative only. They do not represent any actual client, account, or result. Past performance does not indicate future results. Projections are hypothetical in nature and actual results will differ. Please consult a qualified tax, legal, or financial professional regarding your specific situation.
About Jacob Campbell
Jacob Campbell is a Certified Financial Planner (CFP®) and Chartered Life Underwriter (CLU®) with WestPac Wealth Partners in San Diego. He works with high-income professionals and executives, many of them in tech, helping them turn complex compensation like RSUs into a coordinated strategy across investments, taxes, protection, and estate planning.