Selling Immediately

• If you sell immediately, you pay taxes on these shares as income (this is added to your W-2).

Let’s say your income is taxed at the 24% federal tax bracket, and you have a stock grant of 1000 RSUs for this year. The share price is $50 on the vesting rate.

Your stock has a value of $50,000, and you sell it for $50,000. You owe .24 * 50,000, or $12,000 in taxes on your W-2, which will be offset by the stock sale. You’ll get ~$38,000, all things considered.

Holding onto Your RSUs

• If you hold onto your RSUs, you pay taxes out of pocket. The stocks are added as income at their current value, and once you pay your taxes, the stock becomes yours.

Using the above example, you will pay $12,000 in taxes on the stock, and then you are allowed to hold the stock.

Imagine the shares go to $80 a stock, and you’ve held onto them for a year. Any gains (80 - 50 = $30) _ 1000 = ($30,000) are taxed at the 15% capital gains tax rate. This means you’ll pay .15 _ 30000 in taxes, which means another $4,500 in taxes at sale.

General Options

Companies generally offer 3 options come vesting time:

1. “Sell to Cover” sells some of the shares granted to you and uses that to pay for the taxes owed on your RSUs. This is reported on a 1099-B.
2. “Sell all” sells all of your stocks, and then pays off taxes on the grant.
3. “Deposit cash” You deposit money in order to pay for the taxes of gaining the stock. No stocks are sold.

IRAs

IRA stands for Individual Retirement Account.

For an IRA, you call up a brokerage that offers an IRA (Vanguard, Schwab, Fidelity).

You have two choices:

1. Traditional IRA
2. Roth IRA

Both accounts allow you to contribute $6,000 a year.

If you expect to be in a higher tax bracket when making withdrawals, go with the Roth. If you expect to be in a lower tax bracket when making withdrawals, go with the Traditional.

You are only allowed to contribute to a Roth IRA if you make less than $140,000 if filing as Single, or $208,000 if filling as married. It is possible to invest money into a traditional IRA and then roll it over to a Roth IRA even over the income limit. You can read more about this on Investopedia

There are no income limits to contribute to a traditional IRA.

401(k)s

401(k)s are company provided retirement accounts.

401(k)s offer the same accounts as IRAs: Traditional and Roth.

You can contribute up to $19,500 to a traditional IRA, so do that (since that comes with employer match).

Next, if your employer allows it, contribute the maximum of after-tax dollars to your 401(k), as that can be rolled over into a Roth 401(k) which can be turned into a Roth IRA. This allows you to reap the benefits of a Roth IRA even if you’re outside of the income limits.

HSAs

HSAs are owned by the employee and can be transferred to a new custodian when changing jobs. As such, the money is yours, always. Prefer an Has plan to an HRA plan if you meet the following criteria:

1. Covered under a High Deductible health plan (HDHP)
2. Not enrolled in Medicare
3. You are not a dependent on another person’s tax return.

HSAs allow you to invest in mutual funds, so you should do that as soon as you can, since investments grow tax-free, just like Roth accounts.

HRAs

HRAs are accounts that are owned by the employer. Any money accrued inside the account must be spent during the duration of employment, and cannot be rolled over.