RSUs are taxed as ordinary income at vesting. The fair market value of the shares on the vesting date is included in your W-2 income. Your employer withholds taxes at vesting — but the default 22% federal withholding rate often does not match your actual marginal rate at higher income levels, which can reach 37%. Any gain or loss after vesting is a capital gain or loss — short-term if held less than one year, long-term if held longer.

Should I sell my RSUs immediately when they vest?

For most people, selling immediately at vesting is a defensible default — it eliminates additional single-stock concentration risk and avoids holding shares purchased with already-taxed income. The decision to hold should be intentional and informed, not the result of not deciding. The right answer depends on your concentration in company stock, your tax situation, your cash flow needs, and your long-term goals.

What is the difference between RSUs, ISOs, and ESPPs?

RSUs (Restricted Stock Units) are company shares that vest over time and are taxed as ordinary income at vesting. ISOs (Incentive Stock Options) are options to buy company stock at a set price with favorable long-term capital gains treatment if holding periods are met — but they create Alternative Minimum Tax exposure at exercise. ESPPs (Employee Stock Purchase Plans) allow employees to purchase company stock at a discount, typically 15%, with different tax treatment depending on whether shares are held for a qualifying disposition period.

What is concentrated stock risk?

Concentrated stock risk is the financial exposure that comes from holding a large percentage of your net worth in a single company's stock — typically your employer. This creates significant downside risk because both your employment income and investment value could decline simultaneously from the same source. Managing concentration risk involves a disciplined diversification plan that balances the tax cost of selling with the risk of holding, coordinated with your overall financial goals and timeline.

Should I participate in my company ESPP?

For most employees, ESPPs are among the highest-return opportunities available — a 15% discount on company stock represents an immediate guaranteed return before any market appreciation. The key planning question is what to do at purchase. Selling immediately captures the discount and limits additional concentration in your employer. Holding creates potential qualifying disposition tax treatment but adds concentration risk. For most employees with significant RSU exposure already, selling immediately is the conservative and often correct approach.

Do I need a financial advisor to manage equity compensation?

Not necessarily — but equity compensation creates planning complexity that compounds significantly over time if not managed intentionally. Tax withholding gaps, concentration risk, ISO exercise timing, and the interaction between equity income and other financial decisions are easy to get wrong without a coordinated plan. Many people find that one well-coordinated equity compensation decision pays for years of planning fees.

EQUITY COMPENSATION PLANNING

Your equity is one
of your most valuable
assets. Most people
manage it reactively.

RSUs, ESPPs, ISOs, and concentrated stock positions require a coordinated strategy — connected to your taxes, your cash flow, and your long-term goals. Not a default setting.

A workspace with a person using a stylus on a tablet, a laptop on a stand, a calculator, a keyboard, and papers with charts and notes on a desk.

Equity compensation isn't a bonus. It's a planning problem and an opportunity.

Most employees with RSUs, ESPPs, or stock options treat their equity as a windfall — something to be managed at vesting or exercise, in isolation from everything else.

That approach consistently costs people money in ways they often don't see until the tax return arrives or the concentration risk becomes real.

Equity compensation is deeply connected to your tax situation, your cash flow, your concentration risk, and your long-term financial goals.

A decision made without that context isn't just suboptimal — it can create tax surprises, concentrated exposure, and missed opportunities that take years to unwind.

For tech professionals specifically, equity compensation is often the most significant wealth-building opportunity available. See how Dynamic FP works with tech professionals navigating RSUs, ESPPs, and growing financial complexity.

RSUs — Restricted Stock Units

Ordinary income at vesting. Tax withholding, sell-or-hold decisions, concentration management.

ISOs — Incentive Stock Options

Favorable tax treatment with AMT exposure. Exercise timing is a critical planning decision.

ESPPs — Employee Stock Purchase Plans

15% discount creates an immediate return. Qualifying vs. disqualifying disposition strategy.

Concentrated Positions

Single-stock concentration creates real risk. Diversification strategy that accounts for tax cost.

"RSUs sitting in a brokerage account without a plan aren't wealth — they're potential wealth waiting for a decision that never got made."

RSU planning — what most people get wrong

The most common RSU mistake: receiving a large vest, selling shares to cover taxes at the default withholding rate, then discovering at tax filing that you owe significantly more — because 22% wasn't close to your actual marginal rate, and nobody coordinated the withholding with your full income picture. One vest event can create a five-figure tax shortfall.

RSUs are taxed as ordinary income at vesting — treated exactly like salary for tax purposes. But the default 22% federal withholding rate often leaves employees significantly under withheld, particularly in higher income brackets where marginal rates can reach 37%.

A coordinated RSU plan covers withholding strategy, the timing of sell decisions relative to other income events, how each vest fits into your annual tax picture, and a disciplined approach to managing concentration in your employer's stock over time.

The sell-immediately vs. hold question

The right answer depends on your individual situation — but the starting point is acknowledging that holding RSUs means taking a deliberate position in a single stock, using money you've already paid ordinary income tax on. That's a meaningful risk decision, not a default. It deserves to be treated as one.

ISO planning — the AMT problem most people don't see coming

ESPP strategy — one of the highest-return opportunities you have

A 15% discount on company stock represents an immediate guaranteed return before any market movement. For most employees, participating in an ESPP is one of the highest-return decisions available.

The planning question isn't whether to participate — it's what to do at purchase. Selling immediately locks in the discount and eliminates additional concentration in your employer's stock. Holding creates the possibility of qualifying disposition treatment but adds concentration risk and holding period complexity.

For most employees with significant RSU exposure already creating concentration in their employer, selling ESPP shares immediately is the conservative and often correct approach. But the right answer depends on your complete financial picture — which is why it belongs inside a coordinated planning process, not as a standalone decision.

Concentrated stock — the quiet risk most advisors underweight

Concentrated stock is one of the most common and underappreciated sources of financial risk for professionals who've built wealth through equity compensation. When a significant percentage of your net worth is in a single company — especially your employer — you're exposed to both employment risk and investment risk from the same source simultaneously.

The challenge is that concentrated positions are expensive to diversify. Selling triggers capital gains taxes. That cost is real. But the risk of holding is also real — and harder to quantify until something goes wrong.

A disciplined concentration management plan builds a diversification timeline that balances the tax cost of selling with the risk of holding — and integrates with your overall financial picture. It's one of the core coordination challenges in the Wealth Building Architecture™ process.

ISOs offer favorable long-term capital gains treatment if you exercise and hold for at least one year after exercise and two years after grant. The problem is that the spread between your exercise price and the fair market value at exercise creates Alternative Minimum Tax (AMT) exposure — even before you've sold a single share.

ISO exercise timing is one of the most consequential financial planning decisions many professionals make. Getting it wrong creates AMT bills with no immediate proceeds to pay them. Getting it right can save tens of thousands of dollars — but requires modeling your full tax picture across multiple scenarios. This is not a decision to make without coordinated planning. The IRS guidance on ISO taxation is the starting point; applying it to your situation is where judgment matters.

Common questions

How are RSUs taxed?

RSUs are taxed as ordinary income at vesting. The fair market value of the shares on the vesting date is included in your W-2 income. Your employer withholds taxes — but the default 22% federal rate often doesn't match your actual marginal rate at higher income levels. Any gain or loss after vesting is a capital gain or loss — short-term if held less than a year, long-term if held longer. See IRS Publication 525 for the full treatment.

Should I sell my RSUs as soon as they vest?

There's no universal answer — but "sell immediately at vesting" is a defensible default for most people because it eliminates additional concentration risk and avoids the complexity of holding shares purchased with already-taxed income. The decision to hold should be a deliberate, informed choice — not the outcome of not deciding. Both options should be modeled in the context of your full tax picture.

What is the AMT and how does it affect ISO planning?

The Alternative Minimum Tax is a parallel tax system that counts ISO exercise spreads as income — even though you haven't sold the shares yet. This can create substantial tax bills from paper gains, with no immediate proceeds to pay them. ISO exercise timing requires careful scenario modeling coordinated with your regular income, other deductions, and AMT credit carryforward potential. This is a planning decision that should never be made in isolation.

How does Dynamic FP approach equity compensation planning?

Equity compensation planning is built into the Wealth Building Architecture™ — not offered as a separate service. RSU, ISO, and ESPP decisions are coordinated with your full tax picture, income, cash flow, concentration exposure, and long-term goals. We work alongside your CPA to ensure the planning and the tax return are aligned, and we build a proactive calendar around your vesting schedule so decisions are made intentionally — not reactively. See how the full process works.

I work in tech and have both RSUs and an ESPP. Where do I start?

Start with the full picture — not the individual decisions. The right RSU strategy depends on your ESPP concentration. The right ESPP strategy depends on your RSU exposure. Both depend on your tax situation, income trajectory, and liquidity needs. See how Dynamic FP works with tech professionals who are navigating exactly this combination and read the case study on Mark and Priya for a concrete example.

Equity compensation decisions made reactively are the ones you regret.

Schedule YOUR COMPLIMENTARY CALL

Fee-only, fiduciary planning with a coordinated approach to RSUs, ISOs, ESPPs, and concentrated positions.

Dynamic Financial Planning LLC is a registered investment adviser in the State of Arizona. Information provided for educational purposes only. Not investment, tax, legal, or accounting advice. Advisory services provided only under a written agreement. All investing involves risk.