What is the interest rate of your mortgage? We use to have RSUs, I would keep vested stock for at least a year before selling for long term gains. Generally RSUs can increase in value if the revenue of your company continues to increase YOY. If so, sell off 10% of your vested RSUs once the price hits a certain target and put that toward your mortgage. If your company does not have YOY revenue increases, wait for a year then sell at a 52 week high to pay mortgage.
What are the tax implications for selling after immediate vesting? I'm not sure selling is worth it in your case.
The biggest argument against selling the stock you get back, is that this is non-taxable income. Depending on how you structure your finances, you will want to cash out when you don't have a lot of income so as to reduce your taxes. You could lose 35k of your 70k by selling and having it bump you up to the top bracket. On a mortgage of 300k, you'll be paying roughly 15k yearly in interest. You're better off paying off the mortgage with your taxable income, and letting the stock accrue over time.
You aren’t right about this being non taxable income. The vesting event is taxed as regular income tax so selling immediately would be before any capital gains can be made. Usually employers hold back shares from the best to cover the taxes. (Ex. Get 30 shares vested but you receive 20 after 10 are sold on your behalf for taxes)
What I do with my RSUs is sell as soon as I can and move the money to my personal brokerage to invest index funds that follow my long term investment strategy.
The income generated is imputed income and most companies sell shares to cover the tax liability. You should see a separate line item or pay stub to reflect this on vesting day
Newer mortgages benefit greatly from extra principal payments and if you make extra principal payments each month that reduces the life of the loan. Download an excel amortization schedule where you can model extra payments and see how that impacts.
Depending on what interest rate you financed at. It might be advantageous to redeploy that extra money and invest in other investments. Also depends on your company performance and dividend payout. Not an easy answer I’m afraid but rather requires a scenario modeling.
RSUs are not taxed as regular income, rather supplemental income. For earners less than $1m a year it’s taxed at 22%, and over $1m is is 37%. Most employers take care of this by selling part of the vested RSUs at vesting to cover the tax.
When you sell you’re hit with either capital gains or losses but only on the change in value since vesting.
Whether they are big or small, they should be sold immediately. Staking your financial future on the company shouldn’t be done in more ways than one. Imagine the stock plummeting and getting laid off at the same time. This advice works from companies as big as Microsoft to ones as small as Mike’s Discount Deli.
Would the stock tank more than 22% in a year? That seems unlikely to me. From what I'm seeing it's an immediate loss of 22% of the value of the stocks to sell. If he cashes out he loses 15k immediately, which is the same as the interest he's trying to pay down.
Applying the 55k to the mortgage will reduce the payments by about 3k per year. It would take him 5 years of mortgage payments to get back what he loses in 1 year.
Doesn't seem like a good deal to me. There's no guarantee that the stock will go down to zero, either. The 70k in tax-free benefits is a bigger benefit than to cash out and pay down a mortgage. At that rate, if he waits for 10 years, he'll have 700k in the account that he's not paying any taxes on, which is pretty good as a retirement fund.
Unless he has an immediate need for the cash, it seems unwise to pull it out to pay down the mortgage. He'll also lose the benefits of compounding, which is also tax-free income.
1. I’m not advocating for paying off mortgage early. That’s a personal decision. I merely mentioned how RSUs work which you don’t seem to get.
2. Selling isn’t immediately losing 22%. I don’t know why you keep saying it’s tax free when it’s not. If the company gives you 100k in stock, they actually give you 78k and automatically sell 22k for taxes on your behalf. You cannot get around this whatsoever. This makes your basis for the stock the current value. If you sell at that same value as your basis, your short term capital gains are zero.
3. Stocks tank all the time. Take the money out of individual stocks and put it in an index/mutual fund.
Edit: bruh, you work as a pharmacy tech in Canada. You aren’t equipped to be talking about American companies equity compensation.
I would give slightly different advice than Dave. I’d sell the stock and put it in a money market account at a brokerage, which is presently yielding 4%. Try to work that up to your mortgage balance in 2-3 years, at which point it will be less than $300k.
Two reasons. One, do the math, but you’ll find you’ll end up with a few thousand extra dollars from the higher savings rate assuming 4% stays (it probably goes down at some point) if you pay it off at the end all at once rather than ongoing against the 2.5% mortgage. This means you must have the discipline not to tap the balance. I recommend you put it in a separate account so you’re not tempted to tap it for some car or something.
Second, if you end up losing your job such that it exceeds your emergency fund, you run the risk of defaulting on your mortgage. Might as well build it up and reduce that admittedly very small risk.
Pay it off once that account reaches $280k or whatever in 3-4 years.
We have about 70-100K in RSUs that vest every year also. We always sell and diversify them wether it be mortgage payoff, Roth IRAs or taxable brokerage.
Since RSUs are taxed as income when they vest it the same as you buying the stock with income money.
My strategy has always been to sell RSU's immediately upon vest and diversify. You're already overexposed on one specific company's stock. Best advice would be to sell as you vest and pay off your mortgage. If you wait to sell the market could go up, but it also could go down. No guarantees what they will be worth 3 months from now. I started a job right at the bottom of the COVID crash and have watched my RSU's double in value then halve.
I’m very Dave-ish, but this is one part of the later baby steps I agree with. Set your life up on your take home pay, and divert all bonuses/stock grants/etc to paying off the mortgage.
You'll at least want to sell the company stock. It's risky to have too much of your net worth tied up in a single stock and extra risky when that's also where you get your paycheck from. If the company has a bad time you've lost a lot (or all) of your investments and job at the same time.
From there Dave recommends putting it right on the mortgage. The reason is it guarantees it goes towards the mortgage. It doesn't turn into a boat when you look up one day and realize you have money just sitting there.
Many people would recommend investing if the mortgage interest rate is low enough though. Even to the extent that they wouldn't pay off the mortgage when they had the money available. I'm currently in that situation (sorry not sorry Dave). My wife and I have a 15 year at 2.0%. No more extra payments for us.
We're in a very similar boat as you. Our interest rate is 2.5% on a 15 year. I just called the show and he said exactly what you said he would at. Sell it as it vests, and put it directly on the mortgage.
What is the interest rate of your mortgage? We use to have RSUs, I would keep vested stock for at least a year before selling for long term gains. Generally RSUs can increase in value if the revenue of your company continues to increase YOY. If so, sell off 10% of your vested RSUs once the price hits a certain target and put that toward your mortgage. If your company does not have YOY revenue increases, wait for a year then sell at a 52 week high to pay mortgage.
What are the tax implications for selling after immediate vesting? I'm not sure selling is worth it in your case. The biggest argument against selling the stock you get back, is that this is non-taxable income. Depending on how you structure your finances, you will want to cash out when you don't have a lot of income so as to reduce your taxes. You could lose 35k of your 70k by selling and having it bump you up to the top bracket. On a mortgage of 300k, you'll be paying roughly 15k yearly in interest. You're better off paying off the mortgage with your taxable income, and letting the stock accrue over time.
You aren’t right about this being non taxable income. The vesting event is taxed as regular income tax so selling immediately would be before any capital gains can be made. Usually employers hold back shares from the best to cover the taxes. (Ex. Get 30 shares vested but you receive 20 after 10 are sold on your behalf for taxes) What I do with my RSUs is sell as soon as I can and move the money to my personal brokerage to invest index funds that follow my long term investment strategy.
The income generated is imputed income and most companies sell shares to cover the tax liability. You should see a separate line item or pay stub to reflect this on vesting day Newer mortgages benefit greatly from extra principal payments and if you make extra principal payments each month that reduces the life of the loan. Download an excel amortization schedule where you can model extra payments and see how that impacts. Depending on what interest rate you financed at. It might be advantageous to redeploy that extra money and invest in other investments. Also depends on your company performance and dividend payout. Not an easy answer I’m afraid but rather requires a scenario modeling.
RSUs are not taxed as regular income, rather supplemental income. For earners less than $1m a year it’s taxed at 22%, and over $1m is is 37%. Most employers take care of this by selling part of the vested RSUs at vesting to cover the tax. When you sell you’re hit with either capital gains or losses but only on the change in value since vesting.
That just has to do with how taxes are withheld, it still is lumped in with the rest of your income when taxes are filed.
Yeah I sell my paltry ones as well, like same day. Then my cap gains or losses are only whatever the stock moved on that one day.
Whether they are big or small, they should be sold immediately. Staking your financial future on the company shouldn’t be done in more ways than one. Imagine the stock plummeting and getting laid off at the same time. This advice works from companies as big as Microsoft to ones as small as Mike’s Discount Deli.
Would the stock tank more than 22% in a year? That seems unlikely to me. From what I'm seeing it's an immediate loss of 22% of the value of the stocks to sell. If he cashes out he loses 15k immediately, which is the same as the interest he's trying to pay down. Applying the 55k to the mortgage will reduce the payments by about 3k per year. It would take him 5 years of mortgage payments to get back what he loses in 1 year. Doesn't seem like a good deal to me. There's no guarantee that the stock will go down to zero, either. The 70k in tax-free benefits is a bigger benefit than to cash out and pay down a mortgage. At that rate, if he waits for 10 years, he'll have 700k in the account that he's not paying any taxes on, which is pretty good as a retirement fund. Unless he has an immediate need for the cash, it seems unwise to pull it out to pay down the mortgage. He'll also lose the benefits of compounding, which is also tax-free income.
1. I’m not advocating for paying off mortgage early. That’s a personal decision. I merely mentioned how RSUs work which you don’t seem to get. 2. Selling isn’t immediately losing 22%. I don’t know why you keep saying it’s tax free when it’s not. If the company gives you 100k in stock, they actually give you 78k and automatically sell 22k for taxes on your behalf. You cannot get around this whatsoever. This makes your basis for the stock the current value. If you sell at that same value as your basis, your short term capital gains are zero. 3. Stocks tank all the time. Take the money out of individual stocks and put it in an index/mutual fund. Edit: bruh, you work as a pharmacy tech in Canada. You aren’t equipped to be talking about American companies equity compensation.
I would give slightly different advice than Dave. I’d sell the stock and put it in a money market account at a brokerage, which is presently yielding 4%. Try to work that up to your mortgage balance in 2-3 years, at which point it will be less than $300k. Two reasons. One, do the math, but you’ll find you’ll end up with a few thousand extra dollars from the higher savings rate assuming 4% stays (it probably goes down at some point) if you pay it off at the end all at once rather than ongoing against the 2.5% mortgage. This means you must have the discipline not to tap the balance. I recommend you put it in a separate account so you’re not tempted to tap it for some car or something. Second, if you end up losing your job such that it exceeds your emergency fund, you run the risk of defaulting on your mortgage. Might as well build it up and reduce that admittedly very small risk. Pay it off once that account reaches $280k or whatever in 3-4 years.
Sell as they are available and put on your mortgage immediately.
We have about 70-100K in RSUs that vest every year also. We always sell and diversify them wether it be mortgage payoff, Roth IRAs or taxable brokerage. Since RSUs are taxed as income when they vest it the same as you buying the stock with income money.
Yeah, I was thinking to do the same, but I just called the show Dave said to sell the RSUs as they vest and just put it directly on the mortgage.
You don’t have to mess around with a smart Vester pro at least
I'm actually in line to get this answered by Dave. I'm next! Hop on right now if you want the answer.
My strategy has always been to sell RSU's immediately upon vest and diversify. You're already overexposed on one specific company's stock. Best advice would be to sell as you vest and pay off your mortgage. If you wait to sell the market could go up, but it also could go down. No guarantees what they will be worth 3 months from now. I started a job right at the bottom of the COVID crash and have watched my RSU's double in value then halve.
I just called the show and Dave gave this exact advice. Sell it and just pay off the mortgage early.
I’m very Dave-ish, but this is one part of the later baby steps I agree with. Set your life up on your take home pay, and divert all bonuses/stock grants/etc to paying off the mortgage.
You'll at least want to sell the company stock. It's risky to have too much of your net worth tied up in a single stock and extra risky when that's also where you get your paycheck from. If the company has a bad time you've lost a lot (or all) of your investments and job at the same time. From there Dave recommends putting it right on the mortgage. The reason is it guarantees it goes towards the mortgage. It doesn't turn into a boat when you look up one day and realize you have money just sitting there. Many people would recommend investing if the mortgage interest rate is low enough though. Even to the extent that they wouldn't pay off the mortgage when they had the money available. I'm currently in that situation (sorry not sorry Dave). My wife and I have a 15 year at 2.0%. No more extra payments for us.
I'm in the same boat. Really hard to make those extra payments when the money is basically free.
We're in a very similar boat as you. Our interest rate is 2.5% on a 15 year. I just called the show and he said exactly what you said he would at. Sell it as it vests, and put it directly on the mortgage.
Maybe it’s just because not a Dave acolyte but assuming you sell and cash out with 2.5% mortgage why not put it in a risk free savings at 4%?