Equity compensation can build wealth quickly and concentrate it just as fast. Here is how RSUs are taxed and the common ways people reduce single-stock risk.
Key takeaways
- RSUs are taxed as ordinary income at vest; that value becomes your cost basis.
- Default withholding can fall short of the tax owed for higher earners.
- Holding every vest concentrates both your income and your savings in one company.
- Selling at vest, staged sales and 10b5-1 plans are common ways to diversify.
- Set a written maximum single-stock allocation and measure it across all accounts.
How RSUs work
Restricted stock units are a promise to deliver company shares on a vesting schedule. When units vest, the shares become yours, and their market value on the vest date is treated as ordinary income, reported on your W-2.
Employers usually withhold tax by holding back some shares, often at a flat supplemental rate. For higher earners, that withholding can fall short of the tax actually owed, so it is worth checking before filing season.
After vest, the shares have a cost basis equal to their value on the vest date. Any later change in price is a capital gain or loss, short-term if sold within a year and long-term after that.
Illustrative diagram.
Why concentration builds quietly
Every vest adds shares, and if you never sell, a single company can become a large share of your net worth. Your salary, bonus and future equity already depend on the same company, so a downturn can hit your income and your savings at the same time.
Concentration is easy to underestimate when holdings sit across a company plan account, a brokerage account and funds that also hold the stock. Our article on portfolio concentration risk covers how to measure it across accounts.
Common approaches
Sell at vest. Because the vest-date value is already taxed as income and becomes your basis, selling immediately usually creates little additional gain. Many people treat RSUs like a cash bonus and diversify right away.
Staged sales. Selling a fixed portion on a schedule reduces the pressure to time the market. Some insiders use a 10b5-1 trading plan to pre-schedule sales, which can help with trading-window restrictions.
Use losses and gifts thoughtfully. Harvested losses elsewhere can offset gains on appreciated shares, and donating long-term appreciated shares to charity may avoid the capital gains on them. Both depend on your circumstances.
A rule written before the volatility is easier to follow during it.
What this means for you
Decide on a maximum share of net worth you are comfortable holding in any single stock, then write it down. A pre-set rule makes it easier to act when emotions run high.
Watch the calendar: blackout windows, vesting dates and the one-year mark for long-term treatment all affect timing.
Wealthnow reads your connected accounts, including plan and brokerage accounts, so it can show your total exposure to a single company and propose a diversification step that fits your rules. Wealthnow finds and proposes; you approve every move.
Your checklist
- Know your next vest dates and blackout windows
- Check whether withholding covers your actual tax
- Set a written maximum single-stock allocation
- Count the stock across plan, brokerage and fund holdings
- Decide in advance what you will do at each vest
Frequently asked questions
When are RSUs taxed?
At vest, as ordinary income based on the shares' market value that day.
Is it bad to sell RSUs right away?
Not necessarily. Selling at vest usually creates little extra gain and immediately reduces concentration. This is educational, not advice.
What is a 10b5-1 plan?
A pre-arranged trading plan that lets insiders schedule future sales in advance.
Educational content, not investment, tax or legal advice.
