De-Coding RSUs (Restricted Stock Units)

RSUs are a popular form of tech employee benefits and can make up a huge portion of your income.

In this episode, I cover the basics and advanced strategies:

• What are RSUs
• RSU Grants
• How are RSUs Taxed
• Risks of RSUs
• How to Determine Your Risk Level
• Strategies: New RSUs
• Strategies: Old RSUs
• Advanced RSU Strategies

YouTube Link
Related Resources:
RSU Strategy Guide
RSU Tax Calculator

Transcript

Copy Transcript Copied

SPEAKER_00 0:00

It's very possible for your wall to be severely impacted if the double whammy occurs of your employer stock. And so I don't know if you're familiar with what that double whammy would look like. It's like whack, your value falls significantly. So that what you own and shares has fallen, then you're like, oh man, this isn't good. And then whack, another uh whammy comes and hits you, and so you lose your position. So you're you no longer have income flowing in, and one of your assets, and a lot of times uh when it comes to tech employees, you hold on to these things longer than you probably should, and a big chunk of your wealth has just been annihilated. At the same time, you don't have income coming in, so you might have to start relying on some of your assets and selling those things off. This is techie personal finance bootcamp where I help tech professionals in their 20s and 30s balance a great life today without sacrificing their future possibilities. I'm your host, Lucas Caceris, certified financial planner and founder of Level Up Financial Planning, where I help educate, coach, and build strategies with my clients to help them take their financial confidence to the next level. Here's an important compliance disclosure. This podcast is for informational purposes only and they're not to be considered recommendations. It is recommended you consult your trusted financial professional before implementing any information obtained from the Techie Personal Finance Boot Camp. Hello, thank you for joining Techie Personal Finance Bootcamp. And today I'm going to be speaking about decoding RSUs. And so we'll be covering a wide range of topics. We'll cover the basics of RSUs, then at the end, where I talk about some advanced strategies that I like to use with my clients. And I know a lot of you listening are not necessarily ready to work with an advisor, or maybe you're a do-it-yourselfer. And so hopefully this will give you the confidence to be able to navigate your restricted stock units as you receive those as awards and forms of compensation. So, of course, anytime I present anything with specific knowledge, especially when it's talking about investments, I have to provide these disclosures. Basically, to sum it up, is this is for informational purposes only, so make sure that you consult professionals. So don't just take this information and think that it's totally actionable. You do want to check with other resources and what's going to be the best route for you and all the complexities of your financial decisions. So we're going to cover a wide range of topics. We're going to cover what are RCUs, RSU grants, how are RCUs tax, risks of RSUs, how to determine your risk level, strategies for new RCUs for sure, and then strategies for old RSUs, then more advanced ones, uh, because those are uh exciting for me to discuss. So at the very root of it, what are RSUs? So again, it stands for restricted stock units. It's a super popular form of tech employee benefits, and it actually can make up a huge percentage of your income. And it may not initially, and some of you that are listening may not even have this form of compensation just yet. Uh, but as you move up the ranks, as you gain experience, you might be given these awards in the future. So it might be beneficial for you to learn roughly how these things work, uh especially if you think it's in the near future that you'll be receiving these benefits. But even if it's not, uh just remember that this podcast hopefully will live on forever. Um you can do a search for my name and RSUs. You'll find a lot of other information I've already kind of put in other forms of content. So you'll be able to find the information you need it when you're ready to explore a little bit more what this means to you. But basically it's a form of employer stock and it comes in the form of an award, and it's interesting. I'll talk to it a little bit more in the grants uh and how those things work, but ultimately you don't get that full benefit right away. So even though you receive an award and it says you've been awarded 4,000 shares of Intel stock or Apple stock, wherever it is you work, it's gonna say some crazy number, hopefully, because that's a good thing. The higher the amount of shares, uh, the better potential it has to uh generate income for you in the long term. But what happens is those aren't yours. You don't own them outright to where you can be like, oh, yep, let me cash those in and and just take the benefits. You get those over a staggered time period. So that's one interesting thing about them. And it actually creates a lot of planning opportunities just because there's tax consequences, there's large forms of cash flow that could be generated with these things as they become available to you. And so, yeah, it definitely is worth planning and understanding kind of how these things work. So, RCU grants, these things are pretty crazy because you actually can get more than one. Typically, what happens you'll get them annually in most situations, but every now and then there might be certain other triggering events where you might get them more than once a year, and sometimes it might be uh you get a large chunk at this particular point. Sometimes it's just your anniversary, your work anniversary, but then there may be another one where you're kind of measured on other uh circumstances, and that might allow you to earn some additional grants of RSUs. And so, what those are, those are when they're awarded theory. They give you a grant number, doesn't really mean much, it just tells you, like, yep, this this is a particular set of grants, they'll give you a grant date. So that's the date that you've been awarded those, and it that's important because that's when that clock starts ticking on your investment period, and so we'll get to that a little bit more in just a second. But shares granted is gonna be a very important number to be aware of. So that's how many shares that you may be uh awarded, and you don't get those all at once, so that's where we get into the vesting period. So investment period is a schedule that outlines when you will actually receive a portion of your shares granted to you. So usually it's a portion, a percentage each time frame. And so sometimes I've seen those time frames be as monthly, sometimes they're quarterly, and most often they're annually. And so what happens is usually there's a full year waiting period. So if you were uh granted awards two-day, it's more than likely you had to wait at least a year before you ever start seeing any of them. Uh, but then yeah, dependent on your employer and how they've established their vesting periods, it could happen where a year from now, every single month you'll get a very small percentage. Um, and again, the most often I see them be annually, which is nice because it uh it allows for your strategy to be a little bit more clean-cut. You don't have to jump in every month and feel like you have to do something every single month. So it could be a pain if your goal is to sell or have a strategy that requires action as these things vest. If they're current monthly, that's gonna be a pain in the butt. So yeah, hopefully annually, uh, because that will simplify your strategy and and how you can go about those things. And so usually it's about 20% every now and then, it could be up to like 25% total over the course of year. So even if it's 25% for the year, you divide that by 12 if your investment period is set to be monthly. So you'll still get 25% or 20%, whatever it is uh that you're entitled per year, it just you'll get that smaller portion each month or each quarter, however, that's broken up. And so that's important because that's when you do actually become the owner, and that's when you can actually say, like, oh, this money actually is real and it exists. Because until then it's just uh a number that's floating around. And once that vest and period does apply and you receive your shares, then a lot of times those are still tracked, so you'll see your shares granted, and then sometimes right next to it or somewhere else on uh your login portal, you'll see vested shares. So those are the shares that you were already awarded. Once that happens, they actually move it into another bucket, usually within the same custodian. So if you're at Merrill Lynch or Fidelity, it's usually still in that same company. They just move it into an actual account instead of just having the placeholder of the grants. And it once that happens, you're actually the owner, and they'll still track how many shares invested, even if you sell them right away, they'll still track the vested shares. You'll want to navigate to that other account within your portal to see what you actually own and what that value is that is actionable. And then the estimated value. So this again, it's just a meaningless number until you actually receive them because these grants add up, and so that's important to know that if you get them every single year and if they vest 25% a year, let's say, that means if you stay with your current employer for four years, and every single year you get additional grants, you're gonna have four different grants schedules vesting in the same year at some point. So at first it starts out small, you don't you're just gonna have one little section of your RSU grant, but if you stay at your employer, they keep granting you these awards, they add up pretty significantly, and you can have as much as four times what you uh initially received in that first vest in period because you would actually be receiving one chunk of four different grants each time that those vest every single year or however that applies to your situation. So they add up quickly, but until then you'll see a number that looks ridiculous saying that this is the potential value. Well, we'll we'll talk to why that may be meaningless here in a little bit. So I think that the main thing that people are freaked out about when they hear about RCUs and they don't have a comfortability, they don't understand how they work is how are the RCUs and be taxed. So it's important to be aware of these things at vesting. That's really when the taxation occurs. So you're granted the awards, nothing happens typically until they start vesting for you. But once they do vest, your value that they vest at will be based off of whatever the market value is of your employer stock on that given day, and you'll be taxed at ordinary income, which means that you'll have to pay federal taxes, you'll have to pay state taxes. In most situations, you'll have to pay Social Security, and you'll always have to pay Medicare. And so why there's those kind of additional thoughts to Social Security and Medicare is there's a threshold where once your income goes above it for the year, you actually stop paying into Social Security. So it's kind of nice. It's one of the few times ever where your income goes up and you actually get taxed a little bit less. So there's a threshold on that, it gets changed every single year for inflation. And then with Medicare, you're always gonna pay your basic Medicare portion of taxes. But what happens is after you cross a different threshold, which is different than the number for Social Security falling off and having to pay that, there's gonna be an additional Medicare surtax. So again, also uh adjust for inflation. And so just be aware of those things. You'll see that kind of applied on your paycheck, and you'll be like, what? How come social security wasn't applied? Well, it's probably because you passed that amount of income for the year. And what happens too is that you may not see it with regards to RCUs, especially if it happens in the first half of the year. You might just start seeing on your paychecks, like, oh, like in October and November, I noticed that I stopped paying Social Security taxes. Like, am I gonna get hit with the hammer when I file my taxes in the spring? And you're not, it's because regardless of how you cross that income threshold, whether it's your normal salary, your bonus, or these the stock vested and being taxed at ordinary income, once you pass that threshold, you will not have to be paying Social Security taxes on that. So I know that freaks people out the first time they notice it on their pay subs. That's what happens when they vest, though. So that's usually the biggest hit to your taxable situation. After that, you'll only be taxed on the gain. If you happen to have a loss, if the value goes down and you experience a loss, that actually may help reduce your taxes and what you're able to offset there with some of your other gains across your portfolio. But after they vest, if you hold them and you sell them, there's two different ways they can be categorized. They're always going to be treated as capital gains, but there's short-term capital gains and then there's long-term capital gains. And so short-term is whenever you hold something for a year or less. And so it's really tricky. Don't think that if you hold it exactly a year that you can sell it and all of a sudden you move into the long term because it's not, you have to hold it for longer than a year in order for long-term capital gains rates to apply, which are more favorable. That's why a lot of people they'll they'll wait that year, especially if they experience a lot of growth during that first initial hold-in period. And so, just in case you're wondering as far as what those tax brackets look like, I tried to break it out on, and I know most of you are listening to this on the podcast. I actually recorded a video for this just because there is so much information being thrown out. So go ahead and check out my YouTube channel. I'll make sure I include the link in the show notes. But basically, I'll go over the different tax brackets. When you are being taxed at ordinary income rates, those actually range from 10% all the way to 37%. And so it's what it looks like is it's 10%, 12%, 22%, 24%, 32%, 35%, and then 37%. So those are all the different ranges that you could potentially be taxed at in it's based off of where your income the US tax system is progressive. And so what it means is just because you fall into a bracket, let's use the the 24% bracket as an example, it doesn't mean you pay 24% on every single piece of income that you've ever received for that year. You just receive it on the amount that goes over that threshold because each of these have their own bracket range, and so that means that the earlier income that you've earned, you actually pay less tax on it. So the first 9,700 for a single filer, they would only pay 10% on that first 9,700. Once you go above that threshold, then it's taxed at 12%. And then you kind of just keep looking at where those thresholds are, and so that means that if you are in that 24% bracket, your effective tax rate is actually much less than 24% because there's all these other brackets you had to fill up at lower tax rates. And so that's a one thing that a lot of people don't realize is that that marginal tax rate is basically where you're paying taxes at your newest income above that threshold. And so what makes that important to this conversation is because again, capital gains taxes are very different. And so once you're holding those for long-term potentially, if you qualify for long-term capital gains, those rates are 0%, 15%, and 20%. And the 15% is where most of my clients end up falling. That's when your income is between $39,376 and $434,550. And that's for single filers. So it's actually gonna be more for joint filers, which that income level would be $78,751 to $488,850. So definitely a huge chunk where just a majority of people are gonna fall in land when it comes to long-term capital gains. And so that 15% is gonna be way less than uh 24%, even 22%. And some of my clients even are in that 32% bracket. So there's there's a huge difference as far as the tax rates, and so that's why those long-term capital gains rates are so beneficial. I'm actually gonna show you how that arbitrage between those rates can actually be really effective planning strategy for you. Just as a reminder, I had all the tax brackets in my video. You'll you'll definitely want to take that a look. And I'll also have just a standalone page on my website with the link in the show notes. So if you want to see where these brackets actually are and where you fall in land, you'll be able to quickly and easily see those either directly on my website or on my YouTube page. So the biggest thing when it comes to employer stock, regardless of how you come about receiving it and becoming an owner of the employer stock, is the risk associated with it. One question, and I think it's one that most people, when they're reasonable about when they're thinking about their employer, they ask themselves the question how much of a portion of your wealth do you want tied it into one company stock or in one basket? So uh that's a popular phrase, is you don't want all of your eggs in the same basket. And so that's kind of uh something that ends up happening a lot, especially for tech employees, especially when it's talking about employer stock. That's a huge behavioral bias that a lot of tech employees have is feeling that your company is like so great and better than everything else that it could never go down, which any company could go down. There's so many things that are out of your control that just because the technology is perfect and amazing doesn't mean that you have all the people above that are doing the right things, that there's they're not doing shady things or scandalous things that could really bomb a company, whether it's from uh investment value or just from requiring layoffs and and just huge issues internally uh within the company. So those are always threats, and it they're not threats that anyone would know unless you're actually those people in those positions that know that they're not doing the right things or that they're stressing out that like the numbers aren't matching up, they're they're not where they need to be and stuff. So I know it's really easy because you're it's like you're a baby and you get very vested with your uh company, and I'm not saying you can't love your company, I'm just saying you want to open up your eyes and be uh realistic with what you actually know and what you think you know about your company because there's uh that huge uh behavioral bias. Think of that your your stuff is the best stuff just because it's yours, you know, and that's what you're familiar with, that's what you're comfortable with. But there's there's a lot of other risks too. I'll go into detail here. So owning a single company, regardless of whether it's your employer or not, is already like a high-risk, high reward decision. And people like the high reward thinking of it, and they tend to gloss over, try to not think about the high risk reality. And so that's something that we'll talk through really quick here and make sure that you are comfortable and understand kind of what is at risk potentially. So that the value can just possibly drop in value from your initial grant date. So that's again why those numbers, those hypothetical potential value that you see when you log in for shares that you don't actually own yet, those aren't always going to be the values. Those could go down, they could go up. Uh, luckily, most of my clients work for companies that have been doing very well uh within the last handful of years, so those have gone up. But yeah, they could uh drop substantially between now or even when they're initially granted and when you actually start receiving those. So another thing that a lot of people don't know initially is if you leave the company before your shares invest, then you'll actually lose them. There's a rare situation where if you've been with a company for a long-term time period and they're offering workforce reduction packages, every now and then they'll kind of grandfather these things in and say, you know what, I know you're not gonna be here anymore because uh we're letting you go or you're taking this package to leave. What we'll do is we'll accelerate the vest in period so that you're able to take the shares that you've already been granted and we'll we'll accelerate those so that when you leave, you can take that value with you. It's rare and it's only usually in those types of situations where I see those things are accelerated. So it's it's very possible for your wealth to be severely impacted if the double whammy occurs of your employer stock. And so I don't know if you're familiar with what that double whammy would look like. It's like, whack, your value falls significantly. So that what you own in shares has fallen, uh then you're like, oh man, this isn't good, and then whack, another uh whammy comes and hits you, and so you lose your position. So you're you no longer have income flowing in, and one of your assets, and a lot of times uh when it comes to tech employees, you hold on to these things longer than you probably should, and a big chunk of your wealth has just been annihilated at the same time, you don't have income coming in, so you might have to start relying on some of your assets and selling those things off. And so those that's a dangerous position to be in for sure. Another risk is if you hold your shares after investing, the shares could go down from that time period. So what happens is they v. You pay taxes on what that value is, but then if they fall, and then all of a sudden you need them or you don't feel comfortable about the company moving forward and you decide to sell, well, you're selling at a loss. You ended up paying taxes on a value that was more than what you're actually going to receive because they could have fallen at that point. Another risk is even if the shares maintain value, they may actually underperform what diversified assets would do. And so that's always something to keep in the back of your head. And we'll talk about that in just one of the basic strategies of how to think about your employer stock and your strategy with your employer stock compared to all the other options available to you. So just because your company hasn't gone down doesn't mean that it was the best decision or the best move because there could be less risky ways to get the same amount of growth or more growth potentially. And so that's something to just be aware of again. Um, I never want to tell anyone to do anything specifically because it always comes down to your specific situation. But I think awareness and having that information to be empowered, it goes a long way as far as making more informed and more confident decisions. And so the the final thing, and this relates to losing those shares if you leave early, is you might feel the pressure that you can't leave because of the golden handcuffs. And so the golden handcuffs are when you're like you're looking at the next time those shares are going to invest, you're like, oh man, that's gonna be like $150,000, $200,000 if I just wait. Another year on top of what your salary is. So you you get your salary for that time period, plus you get all these grants that we're going to be vesting over that time period. And like I said, there could be as many, usually as many as four different grants that are going to vest around the same time period. And you're like, ah, I can I can eke it out another year. I can make this happen. And so what you do is you end up sticking in a situation that's maybe not ideal, maybe not what you're preferred to do because you just are sticking around for the money. And yeah, I've seen a lot of older clients, especially right before retirement, kind of stick around for that, not be totally happy with the situation. They just kind of get caught on that hamstered wheel and they don't allow themselves to see what other opportunities are out there and and and not to rely on that money so much. So we talked about risk a little bit. So how do you determine what you're actually comfortable with and what your risk level is? And there's a few main points I want to highlight. So uh you first have to understand risk and return. Generally, if if you're weighing risk versus return, you if you're gonna take more risk, you are expecting more return. Uh, if you're taking less risk, you're understanding that you're gonna get less return. The problem with that is just because you accept that and you're and you want those things to apply to what your investments are, doesn't mean it's gonna match up with your reality or what your expectation is. So that's important to be aware of that you think that because you're taking more risk, that it's guaranteed you're gonna get more return. That's not the case, especially when you're talking about non-diversified assets like a single company or a single employer stock. A few other things. So once you get that kind of understanding, you can then decide and create a plan how much return do you actually need to achieve your goal? So that's how I always back into my investment choices, whether it's diversified assets or kind of talking about employer stock, it's important to know where you're headed and what you actually need, because then that helps guide that informed decision to do what's gonna make the most sense for you if you have a family, uh, make the most sense for your family. So, how much return do you actually need to achieve your goals? And the beauty of that is because if you don't need to take a lot of risk to do everything you want to do, well, why risk that future possibility? Why risk that retirement or that type of lifestyle because you're trying to get more than what you actually need? So that's why that's important to just be very clear and understand what you do need to get. Um, it's also important to know how much time before you need the funds. When it comes to investments, investments can be volatile. And even investments that are not volatile, like own in real estate, there's a time component to them. So if you needed something in the short-term time frame, it's gonna be tricky sometimes to accurately predict what that value is or whether it's gonna be liquid enough for you to get out with in terms of real estate. So time is important because if it's something that's less than three years out, you definitely want to reduce as much risk as possible because you just don't know what could happen in that three years. It's been a while since we've seen a recession. People have been calling for one the last two to three years, and luckily we haven't seen one yet, but eventually that's gonna happen, and you don't want it to be within that three to five year time period, uh, which I consider more short-term time periods for your goals. You don't want to risk your investments or risk that your employer stock is gonna get hammered, and you're either not gonna be able to do what that goal is, or you're gonna have to do a fraction of what you were expecting. So you'll you'll actually sell your employer stock after it's hit an all-time low. And so you you lose a lot of potential value, lock in those losses, which is never a good thing. And so that's uh why time is such a critical part that I think a lot of people forget, um, especially a lot of the do-it-yourselfers. If you follow like a lot of these bloggers, people that are not actual financial planners, they're just talking from their own their own viewpoint and their own experience, and not uh have any kind of educational background or experience helping other people and seeing the emotional and human behavior aspects and what actually happens during a recession and how people react. Uh, those are important to you, again, just have in the back of your mind to understand, like, hey, I know these things are possible, so I'm not gonna freak out as much because I at least know they're possibilities. So that's how you're able to adjust and reduce your risk for those shorter term time periods. And so the final thing is just how much risk can you actually stomach? So again, a lot of people think that they're more optimistic. They say, you know what, as long as I'm gonna get a good return, like I'm fine with it going down every now and then, but they don't actually take the time to think and put themselves in that position and think, like, well, what happens if my value fell 50%? How am I gonna feel like if you have a spouse? How are they gonna feel? Like, just what is your life gonna look like? Are you gonna be able to sleep at night? Are you gonna be able to go to work? If not, then that means probably too much risk. We want to make sure that you're not taking that much risk when it comes to your investments, whether it's a single employer stock or uh even more diversified assets, still have lost close to 50% during the last recession. So it's important to be aware of what your comfort level is because again, that human behavior is gonna kick in and you're gonna have a lot less control than you would think over your own actions. And so just being aware and trying to put yourself in that mindset of like, all right, if this happens, how will I most likely react knowing that I'm gonna try to think that I'd be cool with it when I may not be? So again, just playing these things all out in advance and talking through these things in advance allows you to more clearly think through the process when that day comes where it's like, ah, like this is why I was stress testing myself and my thinking process on how much risk I should be taking. So for everyone listening, anyone watching on the YouTube video, this is something that I tend to offer from time to time because it actually doesn't take me a lot of time on my end. So I actually offer a complimentary investor profile. And so it'll actually, I believe it takes about seven minutes to complete. But go ahead, shoot me an email, let me know if you would want to request this. All I need is your email first name, and I can make up, I can just throw dough at the end of your last name if you don't want to provide that. But basically, that's all I need to provide this assessment, and you'll get information back that says, hey, this is where your weaknesses are, this is where your strengths are, and give you some really relevant feedback with regards to your investments and then how you may react in those uh circumstances. So here's the things that it measures. And when I'm working with my clients, I actually turn them into like the old Marvel Comic trading cards where they they had stats with different things like their power, their speed, and stuff like that. So obviously, we're not measuring power and speed for your investor profile, but these are the things that we're measuring. Your investing confidence, which I think is huge, your volatility composure, risk personality, risk preference, judgment, and action. So all those things come into play with regards to how you're gonna make your initial investment decision, but then also how you're gonna react after things start to move, whether they're positive or negative, as far as uh short-term gyrations in the market. We're gonna dive into the different strategies. There'll be new shares and old share strategies. So we'll we'll talk through those and they'll get a little bit complex. So again, available on video to see more detailed uh information. So new shares, one thing that I think is very important just to be aware of if you didn't already know, is if you sell those shares immediately, there's gonna be a negligent amount of tax consequences in addition. So you can't control any of the tax situation that occurs when those shares vest. So they they vest, whatever their value is, that's what you're gonna be paying taxes on. But what you can do is sell them immediately, and then you know that there's no chance of volatility after that point, and there's no additional tax consequences. It may have moved up like $20 or down $20, but when you compare that to like $50,000 or $100,000 in value, it's it's very negligent. And yeah, the tax consequence would be negligent as well at that point. And so how I like to frame it when I'm speaking with people on their employer stock specifically is expectations for your stock. So for those new shares, if you are thinking about them, whether you should sell them or not immediately, if you are comparing this to a lower-risk diversified investment, and I use the SP 500 just as a benchmark or a barometer for that, so a diversified SP 500, it's 500 different companies than the SP 500. So it's diversified and it's gonna do its thing, right? For your employer stock, if you're kind of comparing this to the general US companies uh that are fairly large, and if you think your company is gonna do less or perform worse than those diversified companies, then that means you have low expectations. So you should sell it immediately because why would you take the extra risk, right? So that the opposite end is you're like, oh, well, I think my company is above average, they're gonna do better than those larger companies for X, Y, Z. You you probably have all these reasons if that's the case. So uh if that's the case, then it may make sense to hold it long term. Remember that there is more risk involved when it's a less diversified asset, but also, yeah, there could be value in holding that potentially. So it's something to weigh the risk and reward scenario. There, if if you're like most of my clients, they're like, I have no clue, honestly, like what to expect. Like it seems like we're going in different directions all the time. Or like I talked to this coworker, they're super excited, they say put everything in it. I talked to this other one, and and he thinks he knows stuff, and he says he wouldn't touch it. He won't like he wishes that he wasn't getting these RSU grants. That's how much he doesn't like it. So when when it's not clear to you as far as what you should do, then sell it immediately and then diversify the investments. And then there's also the no-brainer that I didn't even include on my presentation for the YouTube video is if you need the funds right away, well, sell them immediately and then use the funds. Don't don't whatever you have coming up, don't put stuff on credit cards because there's a high probability that you're in double-digit interest rates for credit cards and this employer stock is not likely to do double-digit performance consistently in most situations. And so that would be like a double risk if you're putting stuff on credit card because you weren't freeing up cash to pay it off, uh, but then you're taking a lot of risk hoping that this is gonna do better than how much you're gonna pay in credit card interest over that time period. So don't get caught doing crazy things that don't make sense. When we think about your old shares, so these are shares that you could have actually accumulated in many different ways. So it could be just old RSU grants that are vested, you didn't you didn't know what was going on, you don't know how they work, so you didn't do anything. Um, they could be shares that you received from employer stock purchase plan, they could be just shares that you bought outright, or maybe you have like non-qualified stock options too. So all these things are different ways you could acquire your employer stock. And so one cool thing that I'll note before we dive into some of these advanced strategies is you can identify which shares you want to sell to control the tax impacts. Because if you've had it for a long period of time, most likely you receive them at different points in time with different price points. So you have different cost basis, different tax implications of different lots. And there's almost always a situation where you can identify these chunk of shares as uh either a higher cost basis or a lower cost basis. And I want to recognize more taxable situation for the share for whatever unique tax planning strategy, or I want to free up cash but have uh the least amount of tax impact. So you you'd find those tax lots or the share lots that have the highest cost basis so that when you sell them, there's gonna be very little tax impact, but you're able to get the cash that you need to do whatever it is you need to do. So diving into these more advanced strategies, there's a cool one. I use this one all the time. Like I always review this with my clients when I find out that they have stock options and it's offsetting their taxes by contributing to tax advantage accounts. So think of formal Ks, uh health savings accounts, and I raise. So the reason for that is because you can't control the taxes when the RSUs come in, but there's other benefits and other ways to defer taxes, and it would be in those accounts. I'm actually gonna do a detailed example of that here in just a second, but I want to go through some of these other advanced strategies too. So they're less common, uh, but they're definitely a good way and an efficient way to handle these scenarios. If you have old shares of company stock that just have really low cost basis, which means that if you sell them, they're gonna be a tax nightmare. So you can gift them to family and friends, and what happens is you're passing that potential tax burden onto them. There is gonna be a point in time where if their income is low enough, they might actually pay at the 0% long-term capital gains rate. So that's important to be aware of that. If you are gifting to someone that has a lower income and they fall below that threshold of having to pay 15% for the long-term capital gains, and they're in that 0% for that portion, they could actually sell it without any tax impact. And you just saved 15% of those gains by doing that. So that's one way a lot of times parents do that for their children for their first home purchase or for wedding expenses, things like that, right when they're early in their career. Maybe they're they just finished college and they only have a few months of the year where they earned income, so they're gonna stay below those thresholds. So a lot of times there's some time into it, but a really efficient way to just eliminate taxes potentially, and at the very least, you're shifting it to someone else as you're gifting those things away. Another great benefit, and I don't have the time to go into some of the advanced advanced strategies on this one, but gifting the charity. So you can actually gift appreciated shares instead of cash to these charities. And so not only do you get to save on what you would have paid in capital gains, you actually could potentially save on reducing your taxes out or just from the action of gifting to a charity in the first place. In order for that to occur, you do have to be itemizing your deductions, which a lot of people don't do anymore. So that's a huge thing that most people aren't aware of with the recent tax changes. You might be donating charity thinking that it's gonna be a tax write-off, but most likely it's not gonna be because most people do not itemize their deductions starting as of the tax year 2018. So just be aware of that. But there are strategies if you want to research. I will throw it in the show notes. I created a it's called Should You Fund a Donor Advised Fund. That's a unique type of account where you can actually throw a lot of money in there and allow you to itemize when maybe you wouldn't have otherwise, and you're able to actually control that assets. You can never take it back, but you can actually control the investments and you can send out small portions of your gift each and every year. And so you can put it all in there at once, take the tax benefit all at once, but then slowly deviate out over a couple years or a handful of years, however you see fit. So, again, look up that. I'll make sure it's included in the show notes. And then the final one, it's definitely an advanced uh strategy as well, but you can actually buy put options. So this allows you the right to sell your shares at a specific amount. So uh it's a very advanced strategy, it will help protect you from catastrophic losses. It's important to be aware of that it does cost money to maintain these options. So if your value keeps going up and up and you want to keep protecting that, these options expire based off of the time frame that you purchase them. So as they expire, you want to replace them. And so there's cost to that, which reduces your upside. Uh, but what they're really doing is protecting you from the catastrophic losses uh that could potentially occur. So if there was a huge nightmare in the market or specific to your company, a put option would save you pretty significantly and kind of put the worst case scenario stop on what that situation would look like. So that's another option for you to weigh. So I promise you that we would go into this example of offset in taxes. And so I call this tax rate arbitragans because the ordinary income tax brackets are potentially way higher than where the long-term capital gains tax rates are. So I'm gonna walk you through a scenario and then we will see kind of how this works. So here's a scenario: someone's in the ordinary income bracket of 24%, they have a capital gains tax rate of 15%, and they have old shares that they want to sell. Uh they're worth $100,000 in total, and there's actually $15,000 of pent-up long-term capital gains, and that long-term is an important factor in order for it to qualify for that capital gains rate of 15%. So we'll dive into how these things end up working. And I want to just quickly mention like the benefits of using this offset tax strategy is because it helps reduce your risk, it removes the single employer stock, uh, however much you're selling and comfortable with selling. So it reduces the risk there. It could potentially make your whole maneuver, as you'll see in this example, tax neutral. And sometimes you could actually make it a tax savings too, potentially. Um then you can you could just create more access to funds being available for other things, whether it's reimbursement, reinvestment in diversified assets, or you can just outright use them for short-term goals, uh payoff, whatever it is that you need to do. All right, so this is what it looks like when we dive into the actual example. So if we were gonna sell those $100,000 worth of employer stock, the taxes due at the sale would be $2,250. And so how we got to that is there was that long-term capital gains of $15,000 and that's taxed at 15%. So that's where the $2,250 comes from. And how you can offset that, we're using a 401k as an example, and so we're saying that this person or this couple has the capacity within their 401ks to contribute more than what they're currently doing. And so what they would need to do in order to offset those taxes on that sale of the and that long-term capital gains, would they would have to contribute $9,375. That's gonna be taxed at that 24%. So that's how much, that's how much it would have been taxed at, but because they're putting it into a traditional 401k, it's actually gonna reduce their taxes by 24%, which comes to $2,250. The crazy thing when you think about it and why there's that arbitrage effect is there's actually $90,625 after they make those contributions to be able to be diversified in different investments or to pay off debt applied to other goals and things like that. So uh you actually free up a lot of funds to be able to do what you want with. And in the scenario, they did have to commit $9,375 for that long-term retirement goal, but that gives them a substantial amount remaining to have flexibility to use how they see fit and how they feel will best align them to achieve their goals. Pretty ridiculous when you look at the numbers. And again, I encourage you to look at the video if it's hard for you to follow on the podcast. Thank you very much for listening to this show. Again, let me know if there's any particular question that you want me to answer for you because I really enjoy just kind of nerding out, going into these different details and giving you financial confidence you need to uh attack your financial goals. And so you can also contact me. I although I'm in Fort Collins, Colorado, I work virtually uh with anyone within the United States. Uh my email address is Lucas at levelupfinancial planning.com. And my phone number is 970-222-6783. So feel free to reach out, request your complimentary investor assessment, and I will get that to you really quick. Thank you for listening to Tyche Personal Finance Bootcamp. Remember, if you like what you've been hearing to subscribe, review, and share with your friends and colleagues. I'm also still taking suggestions for future episode topics and guests. If you want to take your connection to the show to the next level, you can find me on LinkedIn or on Facebook. Catch you next time on Tech E Personal Finance Bootcamp.