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EQUITY COMPENSATION PLANNING

Make Your RSUs and ESPP Work Toward Your Goals

RSUs and an ESPP can be valuable parts of your compensation, but each creates decisions about taxes, concentration, and what to do with the shares. We help you evaluate the tradeoffs and connect those decisions to your financial goals.

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No AUM fees. No commissions. No asset minimum.

KEY EQUITY COMPENSATION DECISIONS

Decisions Worth Making Deliberately

What to Do When RSUs Vest

Once RSUs vest, holding the shares is a new decision to invest in company stock. If the value arrived as cash, would you buy company stock or direct it toward diversified investments, retirement savings, a home project, or another goal? We help you weigh concentration, potential upside, taxes, and competing priorities.

Whether to Participate in an ESPP

An employee stock purchase plan (ESPP) with a built-in discount can be worth evaluating when cash flow allows. After purchase, selling can capture the value of the discount and reduce concentration, while holding for a potential qualifying disposition may improve tax treatment but keeps the shares exposed to market risk. We help you evaluate those tradeoffs alongside your other goals.

What We Help You Think Through

Company-Stock Concentration and Diversification

RSU vesting, ESPP purchases, and additional RSUs scheduled to vest in the future can create more company-stock exposure than you realize. We help you evaluate how much fits your broader portfolio and risk tolerance and, when diversifying, which tax lots to sell.

RSU Withholding and Potential Tax Shortfalls

RSUs are generally taxed as ordinary income when they vest, and supplemental withholding can fall below your actual tax rate. We review your withholding and prepare a projection when the compensation amount creates a meaningful tax question.

Immediate ESPP Sales vs. Qualifying Dispositions

Selling ESPP shares shortly after purchase captures the value of the discount and limits market exposure. Holding longer for a qualifying disposition may result in more favorable tax treatment, but it means carrying the position and its risk for longer.

Directing Proceeds Toward Other Goals

Proceeds from selling RSUs and ESPP shares can support a range of financial goals. We help clients weigh options including:

  • Retirement savings, including backdoor and mega backdoor Roth strategies
  • Diversified investments or cash reserves
  • Setting aside cash for taxes
  • A home purchase, renovation, or another personal goal

Connected to Your Larger Financial Plan

Start with what you want the money to accomplish. We help you decide how much company stock to keep, how much to diversify, and how to direct the proceeds toward retirement, investments, cash reserves, a home, or other priorities.

COMMON QUESTIONS

Questions about equity compensation.

RSUs are taxed as ordinary income when they vest, based on the value of the shares at that time, regardless of whether you sell them. Any gain or loss after vesting is taxed separately as a capital gain or loss when you eventually sell, based on how long you've held the shares since vesting. Because the vesting-day value counts as compensation, a large vesting event can push you into a higher tax bracket for that year, which is worth planning around in advance.
Selling at vesting is economically similar to receiving cash and immediately choosing to buy your employer's stock, so the real question is whether you'd make that purchase today. Many clients sell some or all of their shares to avoid concentrating too much wealth in one company that also pays their salary. Others hold shares they have strong conviction in. The right answer depends on your existing equity concentration, tax situation, and how the position fits your broader portfolio and goals.
RSUs and bonuses are often subject to federal withholding at a flat 22% rate when supplemental wages for the year do not exceed $1 million (37% on amounts above that threshold). That is only the amount withheld, not necessarily the tax ultimately owed. Because RSU income stacks on top of your salary, it's often taxed at your highest marginal rate, not the flat withholding rate. Reviewing your projected tax liability ahead of a large vesting event can help you avoid an unexpected bill or underpayment penalty.
A qualified ESPP lets you set aside a portion of your paycheck to purchase company stock, typically at a discount to the market price, often with a lookback provision that uses the lower of the price at the start or end of the offering period. The discount, and any available lookback feature, can make participation attractive, but the value of the shares can still change and the payroll contributions reduce current cash flow. The specific discount and lookback terms depend on your company's plan, and how much to contribute depends on your cash flow and other savings priorities.
Selling immediately after purchase locks in the discount and limits your exposure to further price movement, which is the more conservative choice and avoids adding to your company-stock concentration. Holding longer, until you meet the qualifying disposition holding periods, can improve the tax treatment of any additional gain, but it means carrying company-specific risk for longer. Which approach fits best depends on how much company stock you already hold and how much price risk you're comfortable taking on.
Incentive stock options, or ISOs, may qualify for long-term capital-gains treatment if the shares are held for more than one year after exercise and more than two years after the grant date. However, exercising and holding ISOs can create alternative minimum tax exposure before the shares are sold. Nonqualified stock options, or NSOs, generally create ordinary compensation income on the spread when exercised. ISOs may offer more favorable tax treatment, but they require more careful planning around timing, taxes, concentration risk, and cash flow.
Exercising incentive stock options and holding the shares, rather than exercising and selling immediately, can trigger the alternative minimum tax, because the bargain element (the difference between the exercise price and fair market value) counts as income for AMT purposes even though it isn't taxed under the regular system. This can create a real cash-flow issue if you owe AMT on paper gains before you've sold any shares. Modeling the AMT impact before a large exercise can help you avoid an unexpected tax bill.
There's no fixed percentage that applies to everyone, but a large single-stock position becomes a real concentration risk once it represents a meaningful share of your net worth, especially since your paycheck already depends on the same company. Many households aim to keep any single stock, including employer stock, to a modest share of their overall portfolio, though the right threshold depends on your total wealth and risk tolerance. We help clients build a diversification plan that manages the tax impact.

Novak Financial Partners provides planning and implementation guidance on RSUs and ESPPs but cannot directly manage shares held in an employer's stock-plan account. Strategies discussed may not apply to every client, and we do not guarantee any tax or investment outcome; consult your tax professional regarding your specific tax situation.

Make Equity Compensation Part of Your Financial Plan

Schedule an introductory call to learn how we can help you coordinate your RSU and ESPP decisions with your taxes, investments, cash flow, and other goals.

Schedule a Call

Flat-fee plans from $4,000 per year. No commissions. No asset minimum. Serving clients nationwide by video.