More and more workers are benefiting from equity compensation, and it’s not just limited to the C-suite and senior executives. Mid-level employees often accumulate meaningful positions in their company’s stock. Many of these employees rarely receive guidance on what to do with this compensation, including potential concentration risks and tax implications. Those with options often delay the discussion until tax time in April. Accountants can help, but tax preparation season is often the wrong moment to first discover an equity comp decision that could have been made months earlier.
The risk that matters most here is concentration. When a large share of your portfolio and your paycheck both depend on the same company, a rough patch for that business doesn’t just show up in your account statement. It can show up in your paycheck too. The goal is to separate the two deliberately and on a timeline that works for your family.
Restricted Stock Units (RSUs)
When your RSUs vest, that value is taxed as ordinary income, the same as your salary. There’s no income tax benefit to holding the shares afterward. Any further gain or loss is simply a new investment decision layered on top of income you’ve already paid tax on. Vested RSU shares deserve a fresh look: would you buy this stock today with cash, or would you rather diversify?
Stock Options: Qualified and Non-Qualified
If you hold Non-Qualified Stock Options (NQSOs), the tax bill arrives the moment you exercise, whether or not you sell. Because of that, most households exercise and sell on the same day when the goal is building a diversified portfolio.
Incentive Stock Options (ISOs) work differently, and the tradeoffs are subtler. Exercising can trigger the Alternative Minimum Tax rather than regular income tax, and the size of that bill can surprise even a well-prepared household. Hold the shares long enough (over two years from grant, over one year from exercise), and the eventual gain qualifies for capital gains treatment. Getting this right means planning the number of shares and the timing across multiple years, not scrambling every April. Modeling this well in advance, and coordinating with your Wealth Planner and CPA, keeps tax season from bringing surprises.
When You’d Rather Hold Than Sell
Diversification isn’t the right answer for every family. Some households have real conviction in their employer’s future and choose to hold a larger position deliberately, accepting the tax and concentration tradeoffs because it reflects genuine belief in the business, not inertia. This is common among younger employees, who may carve out a smaller position for long-term upside while diversifying the rest. Wherever you land, it should be a choice made on purpose.
For Executives: Structure Matters
If you’re an executive at a public company, a 10b5-1 trading plan allows you to build a diversification strategy on pre-set rules, so you’re never second-guessing a trade based on information you’re not supposed to act on. If your company is still private, trust structures can help address the same concentration risk while also advancing your estate planning, particularly when a sale or liquidity event is still years out.
The households who come out ahead here are the ones who start the conversation early. Reach out to your Wealth Manager before decisions become deadlines.
