Concentrated equity
Your Vested RSUs Are a Position You Never Actually Chose
Each vest added more of one company's stock to your net worth, a little at a time, until it was a large share of it. The decision in front of you is sell, hold, or diversify, and the useful version is to settle the rule before the next vest rather than react after it.
Nobody decides to put a third of their net worth into one stock. It happens a grant at a time, and the position you end up with is an accident of how you were paid, not a bet you sized on purpose.
That is the whole difference worth holding onto. A concentrated position you chose is a position. One that accumulated through vesting is a default, and the question is whether you want to keep it now that you can see it.
Why it matters
The Risk Is Not the Stock. It Is How Much of You Rides on It.
A single company can do everything right and still fall for reasons that have nothing to do with you, your job, or your timing.
San Diego pays a lot of people in equity. If your shares are in Qualcomm, Illumina, Northrop Grumman, Intuit, or any of the biotech and defense names that anchor the local economy, the story tends to be the same: the company grew, the stock grew with it, and years of vesting quietly turned a benefit into a bet. The bet is fine while it pays. The problem is that the same employer signs your paycheck, so a bad year for the company can hit your income and your savings at once.
If your shares came through an employee stock purchase plan rather than an RSU grant, the discount and the lookback add their own wrinkle to the tax. The Intuit ESPP and RSU guide works through that case in detail, and the mechanics carry over to any ESPP.
The decision
Sell, Hold, or Diversify
Three paths, one shared axis: what each one does, what it costs in tax, and what it does to your concentration.
| Path | What actually happens | The tax it triggers | Effect on your concentration |
|---|---|---|---|
| Sell a planned amount | You turn part of the position into cash or other investments. If the stock has run up, you lock in the gain at today's price rather than betting it keeps running. | A sale of shares held more than a year since vesting is a long-term capital gain on the growth since the vest date. Sold within a year, that growth is short-term and taxed as ordinary income. The vest value was already taxed, so only the growth is taxed again, not the whole amount. | Falls by whatever you sell. This is the only path that reduces it directly. |
| Hold | The position stays as it is, and so does the bet. You keep the full upside if the company does well, and a large share of your net worth moves with it if it does not. | Nothing until you sell. Holding is the only path with no tax event, which is part of why it is the one people default into. | Unchanged, and rising with every future vest unless something offsets it. |
| Diversify gradually | You sell in planned pieces and reinvest across other holdings, often selling each new vest as it lands so the position stops growing while you work the existing block down. | Each sale is its own capital gain, so spreading sales across tax years can keep any single year out of a higher bracket. There is no way to move appreciated stock without a tax event, but there is room in when you take it. | Falls over time, on a schedule you set rather than one the market sets for you. |
What decides it
Four Things Pick the Path, Not a Rule of Thumb
First, how much is too much. There is no universal line. A position that is 5% of your net worth is a holding. One that is 40% is the plan, whether you meant it to be or not. The honest version of the question is how much of your retirement you are comfortable having decided by one company's earnings calls.
Second, the tax cost of selling. Long-term gains are taxed more gently than short-term, so the shares you have held longest are usually the cheapest to sell. The cost of selling is real, but so is the cost of not selling, which never shows up on a tax return.
Third, the vesting timeline. If more shares vest every few months, holding is not a neutral choice, it is a decision to keep adding. Knowing the next vest date changes whether you work the block down now or plan around what is coming.
Fourth, risk capacity. A concentrated position is easier to carry when the rest of the plan is solid: cash reserves, income that does not depend on the same employer, and a timeline that can absorb a bad year. It is hardest to carry in the five years before you stop working, when there is the least time to recover from a bad one.
The California tax
The Withholding Is Where the Surprise Usually Starts
When RSUs vest, your employer withholds tax, and the amount withheld is often less than what you will owe. Federal withholding on this kind of supplemental income is a flat 22% up to one million dollars of supplemental wages in a year, and a mandatory 37% on anything above that. If your marginal rate is higher than 22%, and for many people in this bracket it is, the flat rate covers less than the real bill and the gap shows up at tax time. California adds its own supplemental withholding on top, and for equity and bonus income that flat rate is 10.23%, higher than the 6.6% the state applies to other kinds of supplemental pay.
Then there is the "taxed twice" worry, which is the most common misread of all of this. Vesting is taxed once, as ordinary income on the full value of the shares the day they vest. When you sell, you are taxed again, but only on the growth since that vesting date, not on the whole value, because the vest-date value is already your cost basis. It feels like double taxation because the same shares appear in two different tax years. The place people actually overpay is by losing track of that basis. How long-term gains are taxed for a San Diego high earneris a separate piece, and it decides a lot of the timing on the diversify path.
Near the finish
Within Five Years of Retirement, the Same Three Paths Get Weighed Differently
The stock stops being only a growth question and becomes an income question, and a few deadlines you did not have before start to matter.
Income conversion comes first. The block you have been treating as upside now has to become spendable income on a schedule. Selling into your retirement years spreads the gains across lower-income years, which can cost less in tax than selling while a full salary is still landing on top of it.
The rollover year is the next lever. The year you roll a 401(k) is a year you often have more control over your income than usual, which can make it a good year to also take some gains, or a bad one to stack them, depending on what else is landing that year.
Social Security timing interacts with all of it, because when you claim changes how much a stock sale adds to the income that decides how much of the benefit is taxed. And before Medicare, a large gain can raise the premium on coverage you are buying yourself in the bridge years, while after 65 your income from two years back sets your Medicare premium through IRMAA, so a big sale in the wrong year raises a bill you do not see until later.
The Useful Version Is a Rule, Decided Once
Deciding what to do with the next vest while you are calm is worth more than reacting to each one as it lands. A rule set in advance, how much of the position you are willing to carry and what you do with new shares, turns a recurring decision into a maintenance task. That is the work this page is pointing at, and it is far easier to do before the next vest than in the week it hits your account.
The RSU & ESPP Guide
One short guide to the decision: how to read your own concentration, what selling costs in tax and how to spread it, how the ESPP rules differ from RSUs, and how the questions change as retirement gets close. Written to be read in an afternoon, not filed for later.
Request the complimentary RSU, ESPP and Retirement Timing Guide and it arrives by email.
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What People Ask About Vested Company Stock
When should I sell my RSUs, at vesting or later?
There is no single right answer, but there is a useful default. Many people sell at vesting and reinvest, because the only thing a sale adds at that moment is tax on the growth since the vest date, and at the vest date that growth is usually small. Holding past vesting is a decision to keep betting on the one stock with money you have already paid tax on. The case for waiting is a long-term gain if the shares appreciate and you hold more than a year, so it comes down to how concentrated you already are and how much of that bet you want to keep.
How much company stock is too much?
There is no universal line, and anyone who hands you one is guessing. What matters is the share of your net worth riding on a single company. At 5% it is a holding. At 30% or 40% it is the plan, whether you meant it to be or not. The question worth asking is how much of your retirement you are comfortable having decided by one employer's results.
Do I get taxed twice on my RSUs?
No, though it feels that way. Vesting is taxed once, as ordinary income on the full value of the shares the day they vest. When you sell, you are taxed again only on the growth since that date, not on the whole value, because the vest-date value is already your cost basis. Most of the real overpayment here comes from forgetting that basis and paying tax a second time on money that was already taxed at vesting.
How are RSUs taxed in California?
California taxes RSU income as ordinary income, the same as your salary, and withholds this supplemental income at a state rate of 10.23%. Federal withholding is a flat 22% up to one million dollars of supplemental wages in a year, and a mandatory 37% on anything above that. If your actual marginal rate is higher than the 22% withheld, and for many people in this bracket it is, the shortfall shows up when you file, which is the surprise people run into most.
How do I diversify out of a concentrated position without a big tax bill?
You cannot move appreciated stock without a tax event, but you have a lot of room in the timing. Selling in planned pieces across tax years keeps any single year out of a higher bracket. Selling your longest-held shares first keeps more of the gain at long-term rates. Selling each new vest as it lands stops the position from growing while you work the existing block down. The aim is a schedule you set, rather than one large sale or no sale at all.
Related
If the Rest of the Picture Is the Real Question
Decide the rule before the next vest
A complimentary review starts with the specifics: how concentrated you actually are, what selling would cost in tax this year versus spread across several, and how your next vest changes the math. You leave with a plan for the decision, not a push to make it today.
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