The tax bill arrives whether you sell or not. Once you see that, holding stops being the default and becomes a decision you are actively making every morning.
“The stock is doing pretty well — do you think I should still sell it?”
A client asked me exactly that recently, and it is the version of this question worth answering. Nobody needs persuading to sell something that has gone badly. The hard case is the one where things are going right.
The answer was yes. They sold.
Here is the reasoning — and it is the same reasoning whether your company’s stock has had a good year or a bad one, which is rather the point.
A lot of our clients work at publicly traded companies and are paid partly in restricted stock units (RSUs) that vest on a schedule, year after year. Our general advice is to sell as it vests. Not because there is anything wrong with the company, and not as a view on where the shares are going next. Because of what the position actually is once you look at it clearly, and because of what else in your life is already riding on the same outcome.
Start with what the tax code already thinks happened
RSUs are taxed at vest. Not when you sell — when they vest. The value of the shares on that day is added to your taxable income exactly as if the company had paid you in cash.
If you earn $200,000 and $20,000 of RSUs vest, your taxable income for the year is $220,000. The tax on that $20,000 is owed whether you sell the shares that afternoon or hold them for a decade.
That single fact reframes the whole decision.
Which means they are a cash bonus, delivered awkwardly
The government has already treated your RSUs as though you were paid in cash and immediately went out and bought stock with it. So the honest way to think about vested shares is not “stock I own.” It is a cash bonus that happened to arrive in the form of shares.
And once you see it that way, the question asks itself. Every day you hold vested RSUs, you are saying:
If someone handed me this money in cash right now, the first thing I would do with it is buy my own company’s stock.
That is what not selling means. It is not neutral, and it is not passive — it is an active purchase, remade every morning, of a single stock in the company that already pays your salary.
Asked that way, most people say no.
You do not share the losses on equal terms
This is the part I find people have not worked through, and it is where holding gets genuinely expensive.
Say that $20,000 vests. At a 32% federal bracket plus Illinois, the tax comes to roughly $7,400 — calculated on the price the day it vested.
Sell at vest and you keep about $12,600 after tax. The story ends there.
Hold, and the stock halves. Your shares are now worth $10,000. Your tax bill does not change — it was assessed on $20,000, at a price the stock no longer trades anywhere near. What you have instead is a $10,000 capital loss, which offsets capital gains dollar for dollar and otherwise comes off ordinary income at only $3,000 a year, carrying the rest forward.
So you paid tax at ordinary income rates on the high-water mark, and you recover the loss at capital gains rates, slowly, across future tax years.
The government taxed the peak, and it shares the loss on considerably worse terms than it shared the gain.
Why people hold anyway
Two reasons, and they are not the same problem.
The first is that people do not notice. Shares vest, nobody sends a letter announcing it, and the position quietly accumulates over years until it is a number that surprises them. That one is easy to fix and usually takes ten minutes.
The second is the interesting one: people hold because they think the stock is going up.
The bar is not “will it rise”
If you sell, the money does not go under a mattress. It gets reinvested in the diversified portfolio we already manage for you — which is also expected to rise.
So the question was never will my company’s stock go up. It is will it go up more than everything else I could own instead. That is a much higher bar, and it is the only one that matters.
Across the seventeen companies where our clients work, the answer this year was mostly no. Thirteen of the seventeen lagged the S&P 500. Nine are down for the year in a market up double digits. The middle company in that group is down about 2% while the index is up about 11%.
The spread is the real story: 78 points between the best and worst outcome. Two people took the same risk and finished the year in completely different places, and neither knew in advance which one they were.
This is not peculiar to this year or this list. J.P. Morgan looked at every company in the Russell 3000 since 1980 and found that two-thirds underperformed the index, and that 40% suffered a catastrophic decline — down 70% or more from their peak and never recovering. Roughly 7% were the extreme winners that produced nearly all of the market’s gains.
Everyone hopes they work for one of the 7%. By arithmetic, most people do not.
If it does rise, ask why
Suppose your stock does beat the market. Why would that happen?
Usually because the company is performing well — earnings growing, a product landing, the business taking ground. Which raises a question worth sitting with: what else in your life is tied to that same outcome?
Your salary. Your bonus. Your next grant. The value of the skills you have built inside that specific company. Whether they are promoting or freezing.
When the company does well, most of those improve together — pleasant, and also the problem. You are stacking a good outcome on top of a good outcome, and calling it diversification because it is in a brokerage account.
The reverse is what should worry you. A falling share price usually means something is wrong, and that is precisely when jobs get cut. Hold your RSUs into that and you take all three at once: the position has fallen, you already paid tax at the higher price, and your income is suddenly in question.
There is research that puts a number on the underlying problem. Lisa Meulbroek at Harvard Business School estimated that an employee holding a concentrated position in their own employer gives up roughly 42% of its market value — because they carry the company’s total risk while being paid only for the portion the market compensates. Her phrasing: employees “are exposed to risk for which they are not compensated with higher expected returns.”
A dollar of your company’s stock is not worth a dollar to you. It is worth meaningfully less to you specifically, because you already own the company through your paycheck.
And it compounds. Each vest adds to a position your paycheck already holds, so quarter after quarter the same bet gets larger — which is a lot of leverage to take on without ever deciding to.
When holding does make sense
This is not an argument that nobody should ever own their employer’s stock.
It makes sense when you have a genuine, informed view on the business and you are taking the concentration deliberately — at a size you chose, not one that accumulated while you were not looking. And sometimes it is not your decision at all: trading windows, blackout periods and pre-clearance are real constraints, and they mean the work is having a plan ready rather than acting today.
What rarely makes sense is holding by default, without ever having decided to.
If you are already sitting on a pile
With gains: gifting shares to family in a lower bracket can help, though it is more constrained than people expect. For children, the kiddie tax caps how much unearned income gets favourable treatment each year — beyond roughly $2,700 it is taxed at your rate anyway, which defeats the purpose. It works best as a steady annual move, or with adult children who have aged out of those rules entirely. More on gifting across generations.
With losses: those losses are worth something. Harvesting them offsets gains elsewhere in the portfolio, which after several strong years is not a small consideration. What losses are actually worth.
With a position that is simply too large: it does not have to be resolved in a day, and it is not something you should have to manage on your own. Building the schedule is work we do with clients directly — a set percentage sold each vesting window, or a target share of net worth we trim back to — and then we run it, coordinated with the rest of the portfolio and with the tax side accounted for as we go. Written down, it removes the need to have a view on the stock every quarter, and removes the awkwardness with it. You are not making a call on your employer. You are following a rule you set when nothing was happening — and you are not the one who has to remember to follow it.
The bottom line
Your employer already controls a remarkable amount of your life. Your income. Your health insurance. Your vacation. How you spend most of your waking hours, and how much energy is left at the end of them.
Holding vested company stock hands them one more thing: the value of what you have saved.
They have enough of your attention. They do not need your portfolio too.
If you have RSUs vesting and you have never quite decided what to do with them, that is a short conversation and a useful one. Let us know.
