RSUs and Post-IPO Wealth: Managing Single-Stock Concentration

Post-IPO concentration is not usually the result of a decision. It accumulates: grants vest on a schedule, the price rises, the position becomes most of a household’s net worth, and nobody ever sat down and chose that allocation. Untangling it starts with an unglamorous step — establishing what actually happened for tax purposes at each vest — because most of the folklore in this area is wrong about that one thing.

Why is post-IPO concentration so common?

Because the compensation structure produces it automatically. Equity grants vest on a schedule the employee does not control, in the shares of the employer they already depend on for income. At a successful company the position compounds quietly, and the same price appreciation that makes selling feel premature is what makes the concentration dangerous. By the time it is obvious, the position is large enough that any move has tax consequences worth planning.

There is a second, quieter reason: the position feels like it carries information. Employees believe they understand the company better than the market does, and sometimes they do — but that knowledge is exactly what they may not legally trade on, and it does nothing to diversify the risk that their salary, bonus, and net worth all depend on one employer’s outcome.

How are vested RSUs actually taxed?

An RSU is taxed as ordinary compensation income when it vests and settles, on the fair market value of the shares at that moment. That amount is reported as wages, and it becomes your cost basis in the shares. From that point forward the shares are ordinary stock: any further movement is capital gain or loss, with a holding period starting at vest.

The practical consequence surprises people. An employee holding $3 million of stock that vested at $2.8 million has $200,000 of unrealized capital gain, not $3 million. Selling is far cheaper than they assume, because the expensive part — the ordinary income tax — already happened. The paralysis that makes sense for a founder with near-zero basis frequently makes no sense at all for an employee holding recently vested RSUs.

Why is the tax bill usually larger than expected?

Because of how withholding works on supplemental wages. Many employers withhold at the statutory supplemental rate on RSU vesting, commonly 22% for amounts up to the threshold where a higher mandatory rate applies. For an employee whose actual marginal federal rate is 35% or 37%, plus state tax, that leaves a substantial shortfall that becomes due at filing — often long after the shares were sold or, worse, after they were held and fell.

Two habits address this. Estimate the shortfall at each vest and set the cash aside — commonly by selling shares at vest, which costs almost nothing in capital gains because the basis equals the vest price. And check whether the employer’s plan offers a higher withholding election; many do, and the default is rarely the right one for a high earner.

How can an overlay or hedge help with vested shares?

For shares with a small embedded gain, the honest answer is usually that a hedge is unnecessary — selling is cheap, and diversification is one order away. Structures earn their keep where the gain is large: early-employee and founder shares, ISO exercises held for years, or a position where staged selling would push several years of income into higher brackets. There, a covered-call overlay can generate premium and impose a disciplined exit at chosen prices, and a collar can put a floor under the position while a multi-year sale unfolds.

What decides availability is usually not the tax code but the employer. Many company insider-trading policies prohibit hedging or pledging company stock entirely, and pre-clearance requirements apply to any derivative position. That policy is the first document to read — before evaluating any structure — because it can eliminate the entire category in one sentence.

What about unexercised employee options?

Unexercised options are a different asset and are frequently mismanaged alongside the shares. They carry leverage and an expiration, and they generate their own tax events at exercise — ordinary income on the spread for NSOs, an alternative minimum tax adjustment for ISOs that can be substantial in the year of exercise. An employee who is already concentrated and also holds a large unexercised position is more exposed to the stock than the brokerage balance shows.

The sequencing question is real: exercising early starts a capital-gains holding period and may qualify ISO shares for preferential treatment, but it converts cash into more exposure to the same company and can trigger AMT on paper gains that later evaporate. Deciding it requires modeling both the tax and the concentration together, which is exactly the coordination that tends to fall between the CPA and the advisor.

What should you do in the first year after vesting starts?

• Read the company insider-trading and hedging policy before evaluating any strategy — it decides what is available.
• Reconstruct every vest: date, share count, price at vest, and the basis that follows from it. Brokerage basis reporting on equity compensation is frequently wrong.
• Estimate the withholding shortfall for the year and set the cash aside, or elect a higher withholding rate if the plan permits.
• Sell at vest as the default for shares you would not buy with cash, since the capital gain at that moment is close to zero.
• Adopt a 10b5-1 plan if you are subject to blackout windows, allowing for the applicable cooling-off period before the first trade.
• Separate the small-gain shares from the low-basis shares. They call for different treatment and are routinely managed as one pile.

That first row is the one that saves people the most money and gets the least attention. Selling newly vested shares is the cheapest diversification available to an employee, and it is routinely deferred on the theory that selling triggers a tax — when the tax was already triggered by the vest.

How much concentration is too much?

There is no universal threshold, but there is a useful test: if you held the equivalent value in cash today, how much of it would you put into this one stock? Almost nobody answers "most of it." The gap between that answer and the current allocation is the part that accumulated by default rather than by choice, and it is the part worth addressing first.

Weigh the human capital alongside the financial. Salary, bonus, unvested equity, and health insurance already depend on the same employer, so the household is more exposed than a portfolio statement suggests. That correlation — not the size of the position by itself — is the strongest argument for diversifying earlier than feels necessary.

All figures are hypothetical and illustrative; withholding practices, marginal rates, and state taxes vary. Company insider-trading and hedging policies govern what is permitted regardless of what is tax-efficient. This article is educational and is not investment, tax, or legal advice.

This article is for educational and informational purposes only and is not investment, tax, or legal advice. Option strategies involve risk and are not suitable for all investors. Tax treatment of options is complex and depends on individual circumstances, holding periods, and applicable law; tax rates referenced reflect 2024–2025 federal and state estimates and are subject to change. Consult a qualified tax professional and investment advisor before acting. Yayati Asset Management, LLC is a Registered Investment Adviser. © Yayati Asset Management, LLC. VOLT™ is a trademark of Yayati Asset Management, LLC.