When Equity Compensation Becomes Real Money | On Demand Webinar

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Hello everyone. For those of you whose first Savant webinar this is, welcome and thanks for being here. For those of you who have joined us before, welcome back. We’ve got a great presentation for you all today. As we’re diving into the exciting and mysterious world of equity compensation, there’s a moment that happens to just about everyone who has equity compensation as a part of their pay package. You log into your stock plan account, you look at the balance, and it hits you that this is real money now. Not a line in a benefit summary, but real money. And the very next thought is almost always the same one. Okay, so what am I actually supposed to do with this? Where do I start? That question is what today is all about. Not what an RSU is. You can look that up in four minutes. It’s what to do when the shares actually show up. I’m Evan Goldfuss and I’m an adviser out of our Atlanta office and I’m here today with my colleague Matt Witter from our Doylestown, Pennsylvania office. Welcome Matt. Thanks Evan. Nice to be here. We’re going to cover a lot of ground today and we’ve built in some time at the end for the questions we get asked the most. Here’s what makes equity compensation different from every other part of your financial life. Everything else you chose or at least had an input on. You picked your 41k contribution rate. You chose the funds inside it. You decided to buy the house and how much to put down. Every one of those was a decision you sat down and made on purpose, hopefully. But when it came to your equity compensation, it kind of just showed up. The shares vested on a date somebody else set in a company you don’t necessarily control and in an amount tied to a grant you signed sometimes even years ago and probably haven’t even looked at since. For some of you, it’s very likely that nobody walked you through it. It’s just started accumulating while you were busy doing your actual job. So, when people tell me they’re not really sure what to do with their company stock, my honest reaction is of course you’re not. Nobody ever asks you to make a decision about it. And what to do with it after it’s given is not really after or is really not their problem. But here’s the thing, it’s still income. Your company still paid you. They just paid you in shares instead of cash. And once you see it that way as money earned rather than a windfall that landed on you, the decisions get a lot more straightforward. So, that’s the idea underneath everything we’re going to cover today. So, let’s put some structure on it. Here’s where we’re headed today. We’re going to start with understanding what you actually have because most people have never seen it all on one page. If you haven’t gone through this exercise, I promise you’re not alone here. The information can generally live up to four different places. So, it’s kind of tough to map out. Then, we’re going to work through the four big questions. How much is too much? How does this fit into your plan? Where do the proceeds go? And how do you keep more of it after tax? Okay. Now, notice something about that list. Only the first part is really about equity compensation. Those four are financial planning questions that happen to be pointed at your company stock. That’s the honest version of this topic and it’s why we built the session the way we did instead of as a tour of award types or just a glossary of terms. So, finally, we’re going to come to a close today with a few things worth knowing before you go, including the mistakes we see cost people the most money. Matt is going to start us off and bring us through our first steps today. All right. Hey, thanks Evan. So, let’s start with what you actually have. All right, so on this slide, find your column here because most of you have one, two, or even three of these, and they don’t behave the same way at all. RSUs are shares that you receive once they vest, and they’re taxed as ordinary income the moment you get them. NSOs and ISOs are both the right to buy shares at a set price, but the tax treatment is completely different. And an ESP lets you buy company stock, typically at a discount, through payroll. It’s a nice incentive. Now, look at the bottom line in each box because that’s the point of this slide. RSUs are the only one where the tax event happens to you whether you act or not. Everything else is waiting on a decision that you make. One note on ISOs, they’re the most complicated thing on this slide by far, and 2026 made them even harder because the AMT thresholds came down and the phase out rate doubled. This basically means that the AMT exemption phases out sooner and twice as fast. So, if you hold ISOs, that’s more of a modeling conversation. It’s beyond a webinar conversation. So, now, now that you know which of these boxes apply to you, let’s put them all in one place because the next step is building a complete inventory of everything that you hold.

All right, so here’s a question. If I ask you right now, how many shares vest between today and the end of the year? Could you tell me the number? Most people can’t and that’s not a criticism at all. The reason is that this information lives in four different places. Your stock plan portal is one of them. Your grant agreements is another. The plan document itself. And lastly, payroll. Most likely nobody has ever asked you to put it on one page before. So, that’s the first thing to do and it’s the one item on this list you could finish this week. Doesn’t take too long. Every award, every date, every price in one place. And if you have non-qualified deferred compensation, put that balance and the payout date on the same page because it’s part of the bigger picture. Then look at the bottom line because that’s where this stops being an administrative exercise and starts being more of a financial plan. What percent of your net worth is this? Hold on to that thought because we’ll come back to it in about 10 minutes.

So, there’s only four moments when tax shows up on any of this and it helps enormously to have them straight. At best RSUs become ordinary income on the full value. It lands on your W2 like a bonus and that one is automatic. You don’t really choose the timing. When you exercise options create income for NSOS, the spread between the strike price and the market price is ordinary income. Right? And it’s called the in the money value. For ISOs, there’s no regular tax, but that same spread can trigger alternative minimum tax. This is where the timing is up to you, and it tends to be where the most expensive mistakes happen. We’ve seen it. At sale, you have a capital gain or a loss measured from the value on the day you received the shares. And then at filing, everything gets trued up, which means April isn’t really a planning moment. It’s more of a reporting moment. Three of those four you can influence. The fourth just reports what you already did.

This is the one that surprises people every year. RSU income counts as supplemental income and the withholding rate on supplemental income is set by law by the IRS rather than by your actual tax rate. For most people, it’s a flat 22%. You can think of 22% as like a factory setting. It’s what the payroll system does when nobody has told it anything about you. It isn’t really wrong. It just doesn’t know you exist. So, if your real marginal rate is 32% or 35 or 37%, you’re considered under withheld on every single vest. And you won’t, you know, chances are you won’t find out until April. The fix isn’t complicated. Just run a tax projection in the middle of the year or after each vesting event and cover the difference with an estimated payment. It’s like a 30-minute conversation with your CPA that saves people thousands of dollars and a potential tax surprise.

Let’s put real numbers on that because it lands differently when you can see it. And I’ll say up front, these are illustrative numbers, not a recommendation. So, a thousand shares vest at $100 a share. That’s $100,000 of ordinary income and it goes onto your W2 as wages just like a bonus would. Now look at these two bars because this is the part that surprises people. The bar on the left is what the company withheld $22,000 at the flat 22% default rate we just talked about. The bar on the right is what you actually owe if your marginal rate is 35% for example or $35,000. The red section there is the difference $13,000 and nobody sends you a bill for it until next April. Now multiply that by four vests a year in some cases. But look at the panel all the way on the right because this is the half that nobody talks about. In this example, 780 shares landed in your account worth $78,000 and every one of them is in a single company. Nobody asked whether you wanted that. It just simply happened. And that’s exactly the right place to start the second half of this conversation. Evan, thanks Matt. And that last slide is a good place to go ahead and just stop for a second. Stop and think because everything we’ve covered up to now has been mechanics. What you have, how it’s taxed, when the bill shows up. That’s the how it works part. Everything from here is going to be about what you actually do. And that’s a different kind of question. So, let me put it this way. Imagine you hire a contractor to renovate your house. And the first thing out of their mouth is, “So, are we thinking quartz or granite here?” Before even asking how long you plan to say whether you need another room or even what your budget is, you probably stop them because it’s a little bit backwards, right? They’re answering a question you haven’t even got to yet, maybe even thought of yet. That’s exactly what it looks like when someone gives you an answer about a company stock before they know anything about your life. Sell half, hold three years, wait for the stock to recover. Those are just countertop answers. At Savant, the way we say it is that your planning should drive your strategy, not the other way around. The strategy is the what? The planning is the why. And when people get stuck on equity compensation, it’s almost never because they don’t understand the strategy. It’s because no one has helped them with the why. So, planning is what the next section is all about. The big four questions, how they build on each other, how much is too much, how this fits your plan, where the proceeds go, and how to keep more of it after tax. The big one. Let’s start with the one we get asked more than any other. How much is really too much? Is there even such a thing? Right. Let’s start with what this is actually riding on because it’s usually a little bit more than people count. Your salary comes from one company. So, does your bonus. So, does your health insurance. So, does your 41k match your equity. And if you have deferred comp, that too. That’s six things and one employer. None of that is a problem, right? When things are going well and a bad quarter is fine. Every company has those. But when a company hits a genuinely difficult stretch, which you know some of you may not even have been through yet, those six things don’t tend to move independently. The stock, the bonus, the hiring plans, the job itself, they can all come under pressure in the same period. That’s not a market risk you’re diversified against. That’s a single company risk that you’re carrying in six places at once. Okay, here’s the way we think about it. Your employer already pays your salary, your insurance, your bonus, your match, right? All those things when you hold every share they hand you on top of all of that, you’re spending your paycheck at the company store. And here’s something worth sitting with. Research on individual US stocks show that over longer time horizons, they’ve generally found that only a minority of them both survive and outperform the broader market. Now, that’s not a prediction about your company. Nobody knows which ones those are going to be. You know, if you did, we wouldn’t be sitting here today. It’d be way too easy. Including, you know, the analysts that cover them, they don’t even have that information. It’s just a reminder that, you know, this is not a prediction about your company. It’s just a reminder that any single company is a narrower bet than it tends to feel like from the inside. I also want to be fair about why people hold anyway, because those reasons are real, too. The tax bill can feel like a punishment for doing something right. The stock keeps going up maybe in some cases, so there might not feel like there’s ever any urgency. And also, there’s a genuine loyalty to the company that built your career. Totally get that. All three of those make complete sense. And none of them is, you know, in analysis, but what we’re dealing with today is really being realistic about concentration being how wealth gets built, but diversification is usually what helps preserve it. So, we’re trying to, you know, talk through the difference between those two and be realistic. So, being all in with no plan, that’s the real risk, right? That we want to address. But let’s come back to that actual question, how much is too much? Because this is genuinely the one we get asked more than any other and it deserves, you know, a fair answer rather than just dodging around it. The honest answer is that it’s different for everyone. I always say, you know, my longest running joke is that my most used word in financial planning is always it depends. So, there’s a rule of thumb here that’s worth you know starting with as a conversation starter. Add up everything tied to your employer, your vested shares, your unvested shares, ESP shares, options, both vested and unvested, and any company stocks sitting inside your retirement plan at work. Take it all together. Then go ahead and divide that by your total net worth. And by the way, if you haven’t actually mapped out your net worth, everything you own minus everything you owe, your assets minus your liabilities. This is a good reminder to do that, too. If that number comes in at about 10%, this usually isn’t your biggest issue. 10 to 20% is the range you’ll commonly hear is described as a good long-term ceiling. And above 20%, that question usually isn’t about whether to diversify. It’s on what schedule, on what cadence. Here’s the part that people miss, though. Unvested shares still count. The more equity you’re still waiting on, the more exposure you already have coming your way. And the stronger the case for selling the vested shares as they arrive to help maintain your long-term exposure. Now, one thing before we move on, because the percentage only gets you so far, that number is a diagnostic. It tells you whether you have a concentration issue and roughly how big it is. What it doesn’t tell you is what to do with the shares actually sitting in your account today. Nobody should immediately sell 11% of their net worth just because, you know, we’re talking about it on this slide or because they’re a little bit over that ratio. So, there’s a second question here, and it’s much simpler than you’d expect. Go ahead and ask yourself, if that money were sitting in your checking account today in cash, would you go out on the open market and buy the stock with it, all of it, at today’s price? If the answer is yes, and you’re okay with that risk, then long-term holding and accumulation is a legitimate plan here. Some of you have done extremely well holding, you know, your company stock, and I’m not going to stand here and tell you that was wrong. But quite often that answer is no. And if it’s no, you’re not holding on to an investment. You’re holding on to, you know, accumulation. Really, those shares showed up and nobody ever made a decision about them. There’s really no third answer here. Not deciding is still deciding to hold. The practical version of this is to set a default rule for new vests. To set it in a calm month, too, not when things are hectic or changing a lot. That way, the decision gets made once on purpose instead of four times a year potentially under a lot of pressure. So, here’s the thing. Most people when they hear that question, they already know their answer, but they still don’t act on it. So, why is that? It’s not because they’re bad at math or, you know, they’re hesitant about making decisions. It’s because you work there. Because you know the products, you know the road map, you know how good the team is, you’re on it. It genuinely feels like something you’re It generally feels like you know something that the market doesn’t. Behavioral econ economists have a name for this familiarity bias. It’s the tendency to prefer what we recognize over what’s better diversified. It’s one of the most well documented biases that there is out there. And sometimes you really do have insight. You may honestly have a better read on your company’s competitive position than an outside analyst does. That’s absolutely possible. But here’s the test. Can you point to a concrete analysis or is what you actually have just a feeling that the stock is going to up to go up or some gossip around the company? Those aren’t the same thing and really only one of them belongs in a financial plan. And that’s really the bridge into our second question because whether you hold or sell the amount and the timing shouldn’t come down to a gut feeling about the stock. It should come out of your plan, your specific plan. So, that brings us to question two and to the one question your stock price can’t answer for you. How much should I sell? Every other question today has some kind of rule of thumb behind it. This one really doesn’t. This one has a number and that number should come directly out of your personal plan. It doesn’t come out of the stock price because if you’re waiting for that right price, there is always a reason to wait one more quarter or for, you know, one more inch up. It doesn’t have to come out of your tax bracket either because tax the tax having the tax tail wag the dog is not the way to approach this. So, here’s what we actually do. We take the plan you already have your goals your timeline your spending what we’re trying to achieve and then we stress test it. We say what if we cut that concentrated position on paper in half. Okay we model a 50% decline and we see what happens. If that plan still works then you have real flexibility here. And holding is a choice you can afford to make. If the plan breaks, however, then we know exactly how much has to come off the table to stop it from breaking. That is truly what your number should be. Think of it like a fire drill. We’re not predicting a fire. We’re checking the exits that work. Because that’s all diversification is really asking. It’s not what will the stock do, just this if it happened, you know, if that happened, that big decline, would you still be okay? Would your plan still be fine? That’s what we’re trying to figure out. So, what goes into that number? Here’s how we actually build it. Because the assumptions matter way more than the math does. Unvested shares only count if you genuinely plan to be there through the vesting period. If you’re thinking about leaving inside a year, we only model what vests before you go. Otherwise, you’re building a plan on shares you might never receive. Future grants we treat as upside, never as an assumption. Even on a normal refresh cycle, they aren’t promised. Companies mature, grants can shrink, people change industries. So, we leave them out on purpose. And if they show up, that’s a good problem to have. On value, if the stock is just run up and it’s sitting near an all-time high, we go ahead and use a more conservative number. And if it’s private company, we discount it even further because those valuations can move a long way before the final. So, here’s the one that matters the most. For the shares you plan to keep, we model them as if the proceeds were already in a diversified portfolio. Not because we’re being pessimistic about your company or because we don’t believe. It’s because a diversified portfolio has decades of return history behind it and a single stock necessarily does not. If the only way your plan works is by assuming your company’s stock keeps compounding at the rate it just did, that is not a plan. That’s a hope. So, we want to be realistic with our approaches and our assumptions. So, that’s the number and that’s how we build it. The other half of the same question is what is the money actually used for? Okay. And there really are about four jobs you know that money can do. Think about your paycheck for a second. Every dollar already has its own job, right? Some goes to the mortgage, some goes to savings, some goes to groceries. You all you assign all of that, you know, those little jobs for each of those dollars and you may not think about it anymore. Equity proceeds, however, show up with nothing necessarily assigned to it. Same money, no instructions. So, here’s the order we’d kind of like to or recommend giving it, right? Taxes, those come first. Those are deliberate. Remember Matt’s example, the $13,000 gap. That’s a tough one. That’s a cash flow problem before it’s ever even a tax problem. People owe money in April and end up selling something sometimes in a hurry to cover it. And that can come at whatever stock price you know the market happens to be at that week. Not a position you want to put yourself in. Second is the goals with a real date attached, right? Taking a fair look at your timeline and when you’re going to need funds. A house, a tuition, a sabbatical, a big payment, those are the ones where timing really matters because you can’t necessarily move the date. The market doesn’t care that your closing is in March. You know, you want to be you know, have that flexibility built in. Third is the reserves. And this is one is kind of underrated. The best protection against a bad sale is not needing to sell at all. If a market drop and a cash need show up in the same month, reserves and flexibility are what let you choose instead of act or choose rather instead of react. And everything left over, you know, in that fourth job should go to long-term investing, building out your long-term plan. Now, that order matters, but the real point is the timing. Assigning every dollar to a job before the sale, not after. Because money that shows up unassigned tends to do one of two things. One, it gets spent, right? Let’s be honest here, in ways nobody would have chosen, you know, on purpose. Or two, which arguably could be worse. It sits in cash for too long, not working for you at all. You know, just sitting there while you decide on kind of what the game plan is. That’s its own decision. It’s just a slower one. I genuinely encourage everyone here to write down before you sell anything. Okay? Write down those sentences. It doesn’t have to be a spreadsheet, but just a sentence to establish a purpose for those funds when they come in. This is for the tax bill. This is for the down payment. This is for the reserve. If you can’t finish one of those sentences, that’s useful information, too. And it’s usually the sign that the conversation you need to have isn’t even about the stock at all. It’s something bigger. So, here’s the version of this that quietly does the most damage. RSUs are actually more predictable than a bonus. You usually know what the share count is well in advance, even if you don’t know the price. And that predictability is exactly what makes them kind of dangerous. Because when something arrives four times a year, some, you know, like clockwork, it stops feeling like a windfall and it starts feeling like income. And once it feels like income, it becomes a part of your lifestyle, right? The house, the cars, the schools, nobody sits down and decides to do that. It happens one good year at a time and each individual step is, you know, completely reasonable. Then the grants finish vesting or the company doesn’t refresh at the same level or you move into a role where equity may not be, you know, a part of your package and that income goes away or can go away. Meanwhile, the house payment, you know, the tuition, all that other stuff, none of that necessarily adjusts or, you know, is given a signal to adjust. It’s very hard to cut expenses far enough and fast enough to rebalance a budget that was built on equity. Let’s go back to the house example from earlier. Your salary is the foundation, right? Your equity is the roof. You want to build your house on the foundation. And if the roof comes off in a storm, you’ll still have the house. But build the house on the roof, you’ve got a real problem here. So, I also want to be fair here because some of your equity is not a bonus on top, right? It’s most of your compensation in some cases and telling you to live on a base salary is not necessarily realistic. That’s perfectly fine. It just has to be a deliberate choice rather than a drift. And practically, it usually means carrying more in reserves, right, for that flexibility. And being more conservative about your fixed cost because the thing funding your lifestyle can move sometimes up to 30% a year, right? That’s a lot to be moving around and planning about. But for most people, here’s the rule that holds that up. Let the salary carry the fixed cost, the things you committed to every month, whether the stock is up, whether the stock is up or down, right? And then let the equity do the work that changes your life, funding the goals, building the reserves, building back some of that flexibility. Live on the salary. Let the equity build the plan. All right, so you’ve mapped it out and now you’re selling some shares. Where does that money actually go, Matt? Yeah, thanks Evan. We often say here, you know, that the best wealth acceleration tool is accumulating your long-term incentives over time. So, almost every talk on this subject says diversify and then it stops. You nobody tells you into what. And that gap is exactly why people sell their company stock and then leave the money sitting in cash for several years. For example, so start by looking at what you actually own. A lot of people sell company stock and then buy the very same risk right back without realizing it. If you work in tech or a large pharmaceutical company, for example, and your 401k sits in a large cap growth fund, you may be more concentrated in your own so sector after the sale than you were before it. So, go look this week. It takes a couple of minutes. The default destination is boring on purpose. A broad, low-cost, tax efficient mix of stocks and bonds. This is not the place to try to be clever. It match the risk to the timeline. Money that you need for a house in 18 months doesn’t belong in the same bucket as money that you need in 20 years for retirement. Then rebalance on a schedule, not on a headline. Before you decide where the proceeds go, it’s worth looking at what the whole portfolio is actually doing for you. We believe asset allocation is the main determinant of a portfolio’s returns, and it should be driven by your plan rather than by whatever happened to land in the account. Now, look at that chart for a second. When a single position gets large enough, it stops being one holding and starts being the allocation. Your mix is no longer what you chose. It’s whatever the vesting schedule handed you. So, evaluate the allocation before and after any large transaction, not just after. A sale that looks like diversification can leave you just as concentrated if the proceeds go somewhere closely correlated. And that last line is the one to hold on to. Your equity award decision should line up with your long-term risk tolerance.

There’s one more layer that most people never touch, and it isn’t what you own, it’s where you own it. Same clothes, different pockets. You can think of it as two households can own the identical portfolio and one of them keeps meaningfully more of the return purely because of which account each holding sits in. The general idea is that the holdings which throw off a lot of taxable income belong in your retirement accounts and the tax efficient holdings belong in the taxable account. In a big vest year when your bracket jumps, something like high-quality municipal bonds can sometimes beat the taxable alternative on an after tax basis. As one example, and this one ties directly back to your company stock, losses harvested elsewhere in your portfolio can offset the gains that you realize when you diversify out of a concentrated position. That’s the whole argument for managing the taxes and the investments together instead of separately. The bottom line, in plain terms, selling a large concentrated stock position is going to create a tax bill. That’s simply unavoidable. But we have solutions to help manage that impact so it costs you less than it would if you sold without a plan. All right, so here’s the same idea, but one level deeper. Every dollar you own lives in one of the three buckets here on the screen, and they behave completely differently. The Roth you can think of as the golden bucket. It’s best for long-term growth, for money that you may take as a lump sum, and for what you plan to leave behind to your heirs. It’s actually the worst place to hold what you plan to give to charity because the charity doesn’t pay the tax anyway. The traditional IRA is you can think of as the borrowed bucket because part of it already belongs to the government since you haven’t paid the tax yet. It’s best for steady spending in retirement and for strategic rough conversions, ideally when you’re in a lower bracket. And it’s a great place to give from once you’re old enough. It’s the worst place to pull a large lump sum out of because that’s exactly when the bracket jumps. And the taxable bucket you can think of as the leaky bucket because it gets taxed along the way. That’s where nearly all of your equity compensation lands. Lump sums, legacy through the step up in cost basis, and charitable giving with appreciated shares all work best here in the taxable bucket. The point here isn’t the taxonomy. It’s that the same dollar is worth different amounts depending on which bucket it’s sitting in. Now, let’s talk about what all this costs. Starting with something that surprises people. Most of the timing on this isn’t a choice, it’s a constraint. And honestly, that’s a relief because it means you’re not supposed to be predicting the market anyway. Blackout windows can close for weeks at a time around earning season. If you’re considered an insider or you have material non-public information, the restrictions are tighter still. A 10B51 plan is the standard tool for insiders and it does give you an affirmative defense, but the SEC tightened those rules significantly in 2023. There are mandatory cooling off periods before trading can begin, certifications that you have to sign, and limits on overlapping plans. So, it’s not something you set up the week that you want to sell. And if you have deferred compensation, your election deadline usually falls before the year even begins. That’s a date most people don’t even have on their calendar at all. So, put every one of these on one calendar and work backwards because the decision date is always earlier than the deadline, usually by a lot. The reason to do this in February is that in November, you’ll have three weeks and no options.

And when you have more than one kind of award, the order you go in matters as much as the timing does. I’ll be honest with you, there’s no universal answer to this, and anyone who gives you one in 30 seconds is just guessing. The left side of this slide is why, which awards you hold, how far into vesting you are, how long you’ve held the delivered shares, what your income looks like over the next few years, whether you’re carrying an AMT credit, and what the trading windows allow. I’m not going to read all of them. The length of the list is the message here. But look at the last one. What the cash is actually for. That’s question two showing up inside question four of this presentation. These aren’t separate conversations. On the right is one approach to the order within a given stock position. Largest short-term losses first, then long-term losses, then the smallest long-term gains, and then the smallest short-term gains. And notice the note at the bottom because it matters. This usually plays out over several years, not just one year. In plain language, within anyone stock position, sell your losers first before your winners and sell your biggest losers first. That order lowers your tax bill along the way, which is why we don’t just sell in the order the shares happen to vest in.

Before we get to what you can control, there are two tax rates worth knowing here because together they set the size of the price. Here’s the here’s the first one. When you sell shares that you’ve held for more than a year, the gain is taxed at long-term capital gains rates, and those are meaningfully lower than the ordinary income rates we talked about earlier. That’s true for stocks and funds held outside your IAS and 401ks, for real estate, and for the capital gain distributions that your mutual funds throw off. Whether you sold anything that year or not, you can’t control it. Now, notice the shape of the chart. The rate steps up as income rises, which means the identical sale can cost you very different amounts depending on what else happened that year. That’s really the whole argument for planning a sale rather than just executing a sale. The gain is what it is. The rate you pay on it is partly a choice. So, where does advanced planning actually come in? Two places. Timing, which we just covered, and the losses you have available to offset those gains. That’s what the bottom half of this slide is all about. Custom indexing means that instead of buying one fund that holds 500 companies, you actually own the individual stocks. So, in any given year when a handful of them are down, you can sell those specific positions, capture the loss and stay still stay invested. A fund can’t do that for you because inside a fund those individual positions are invisible to you. Portfolio extensions take it one step further. A long only portfolio eventually runs out of losses to harvest because after a few good years, everything you own has appreciated. Adding a short side gives a strategy a way to keep finding them. Now, these strategies involve shorting and added complexity. So, they’re not the right fit for everybody. That’s a conversation. It’s not a default. Should not be looked at a default. And here’s why any of this matters for today. Those harvested losses offset the gains you realize when you sell the company stock. That’s how a diversification plan gets meaningfully cheaper. And it’s the clearest example I can give you of the tax side and the investment side being the same decision. There’s one more rate that catches people at exactly this income level, and it’s the one that almost nobody sees coming.

On top of capital gains tax, there’s an additional 3.8% net investment income tax. It applies to dividends, rents, and capital gains once your income goes above 250,000 if you’re filing as married filing jointly or if you’re $200,000 filing as a single person. Here’s why it matters on this topic specifically. A large vest pushes your income up and then the sale of those shares gets hit with a sir tax that the vest itself helped to trigger. It’s only 3.8% so it’s not the biggest number on this slide but it’s one more reason that splitting a large sale across two different tax years is often worth real money to you.

Now some of you also have non-qualified deferred compensation. We referred to that a couple times so far here and it deserves its own minute because it behaves differently from everything else that we’ve covered so far. Defer compensation, it’s not equity. You’re not receiving shares. You’re choosing to be paid later instead of now, usually to push income into a year when you expect to be in a lower bracket. That can work very well, but two things make it different. First, the election is made before the year even begins. And once it’s made, it’s effectively locked. You’re deciding in the fall of this year about income that you’re going to earn next year and you generally can’t change your mind once you’ve made the election. Second, and this is the important one, it’s a promise from the company rather than an account in your name. Your vested shares are yours. However, if the company runs into serious trouble, you own a stock that went down. Your deferred comp is considered an unsecured claim. So, if the company fails, you’re standing in line with the other creditors. That’s why it belongs in the concentration conversation that we had earlier. And the piece that you know people miss most often is the collision. Your payout schedule is set years in advance. If a large deferred compensation distribution lands in the same year as a big vesting event, you’ve now stacked two ordinary income events in one tax year. That’s very fixable, but only if you look at it before the election and not after.

So, with all that in mind, here’s what you can actually control in a year when a lot of this lands at once. Simplest one first, selling part of a large position in December and part in January can keep more of it out of a higher bracket. Almost nobody does this and it costs nothing but a conversation late in the year like in October for example. If you already give to charity, this is the big one. Company stock with a large gain that you’ve held for more than a year is usually a better thing to give than cash. You may get a deduction for the full value and avoid the capital gain entirely. And a donor advice fund lets you do all of that in the year that the big vest lands when the deduction is worth the most to you. And then you can decide later which charities actually receive it. Then the ordinary things that matter more than usual in a high year. Harvest losses elsewhere in the portfolio. Max the 401k, max your HSA, no-brainers if you can afford it. And notice that every one of those levers requires knowing about the vest before it happens. Tax planning and tax preparation are not the same activity. By the time the forms arrive, the decisions have already been made. Evan, thanks, Matt. Before we open it up, four things we didn’t want you to leave here today without. What happens if you leave your company, the mistakes we see cost people the most, why this is so hard to do alone, and then a checklist you can actually use and take away today. So, the first one isn’t the, you know, honestly in most presentations on this subject, and I honestly think it should be in all of them. Here’s the headline. In a lot of plans, a 10-year option turns into something like a 90-day option the moment you give notice. Same option, same grant. The clock just totally changed. Now, that window does vary. Some plans are shorter, some are considerably longer, and it can totally depend on when you’re leaving. But whatever yours says, most people find out what it says after they’ve already resigned. Unvested awards are a similar story. In most plans, they’re simply forfeited. So, if you’re 3 months away from a large vest, that’s a real number and it belongs in the math when you’re weighing an offer. I have watched people negotiate hard over $10,000 of base salary and then walk away from $50,000 of unvested stock without ever running the numbers. Every one of those rules lives inside of your plan document, not in whatever HR tells you in just the exit meeting. Think of it like a lease on an apartment. Nobody reads the moveout section until the week they’re actually moving out and by then the terms are the terms. So, with the treatment provisions you know take a look at those before you resign, not after. And that same section usually covers what happens in the event of disability or death. And those are absolutely worth knowing for exactly the same reason. The second thing, the four that cost people the most, and I’m going to tell you upfront, the first three are ones that almost nobody in this room has checked or figured out. Number one is the only one on this list where you can actually get money back. You already paid ordinary income tax on your shares when they vested. That value is your cost basis. But brokerage 1099B forms can sometimes report that basis as zero or even leave it blank altogether. If your return gets filed that way, you pay tax on the same dollars a second time. Not fun. So, pull the supplemental statement your broker sends alongside the 1099b. Check that basis against the best date value. And if it doesn’t match, get it corrected. And it’s worth looking back at prior years, right? Because amended returns are possible and we don’t want to be leaving money on the table. Number two is a timing trap on the ESP side. Depending on how long you have held the shares, that purchase discount can be treated as ordinary income rather than capital gain. Same shares, same sale price, way different tax bill. And the only variable is the date. So, know where you stand in your holding period before you sell, not after. Number three takes about 5 minutes in your stock plan portal. Most plans give you a choice about how the tax gets covered when shares vest. Selling some of the shares, having the company hold shares back, paying cash, or taking it out of a paycheck. And if you never make that election, a lot of plans just pick one for you, and that’s definitely not the route we want to take. Now, none of those options change how much tax you owe, but they can change you know, how many shares you walk away owning and whether cash leaves your account that month. So, it isn’t really a tax question at all. It’s a question about how much company stock do you want to keep buying? And it’s being answered by a default setting that you’ve probably never looked at. So, go find that screen. Number four is one that we’ve been circling kind of all hour here. And if you can’t answer that cash bonus question, you don’t have a strategy. You have an accumulation. And here’s the difference between that one and the other three. Everything else on this list costs you money once. That one compounds quietly for as long as you leave it alone. So, definitely one of the most important to pay attention to. Now here’s the third thing and it’s one that kind of ties this whole session together. Go back to those four for just a second. Not one of them is really that complicated. You understood all four just now in about a couple minutes. So, if they’re that easy to understand, why do they keep happening? Why do they come up at all? Because none of this is really a knowledge problem. They’re handoff problems. Look at each one of, you know, look at what each of these people, you know, on your team actually sees. Your adviser knows your goals in your portfolio, but often doesn’t see the tax return until it’s been filed. Your CPA sees the return, but usually in March, months after every decision that actually mattered and was factored into that was already made, you know, at that point, they’re really just, you know, baking the cake and didn’t choose the ingredients. Your stock plan administrator holds the grant term, the windows, the election screens, and has no idea what you know the money is for you and they can’t advise you on that. Most often they each person on this team just has a you know really a third of your picture. And when nobody has the whole thing, those pieces just don’t connect. And that gap is exactly where all four of those mistakes really live. So, here’s what we’ll leave you with. You shouldn’t have to walk this road by yourself. And you shouldn’t have to be the one stitching it together either in the middle of a busy career or you know in those last four weeks before your end. That shouldn’t be on you. And it isn’t just about having people. It’s about having the people who are actually coordinated on one team. Three good professionals working separately is 3/3 of a picture that has never gotten assembled. Right? What you want is everybody looking at the same exact map, working from the same file and planning the same year. Not individual players, but one team and all of it is on your side. That’s a big part of why we are built the way we are here at Savant. Our planning people, our investment people, our tax people, they all sit under one roof and work from the same information on you. But however you get there, somebody has to be holding the whole picture. And it’s a much easier road when you’re not the one holding it alone. So, one last thing, everything we covered here in one place on one slide. If you know you want to take a screenshot, now’s the time to do so. So, if you take one thing away, you know, from this whole hour, definitely take this, you know, page in its entirety. Notice how it’s grouped because those four columns are really four different kinds of work. The first you can do entirely on your own and you could genuinely finish them this week if you wanted to get, you know, get diligent and get after it. You can build that list. Then run the numbers. What percent of your net worth, you know, this actually is. What was actually withheld on your last vest and what’s coming between now and the end of the year. The third column is verification. These aren’t things to figure out. They are things to go look up and confirm. The answers already exist. They’re in your 1099B in your plan document in your stock plan portal. 10 minutes on each and most people have never opened really any of them. The fourth column is the conversation. That’s the part that really isn’t a task. It’s the plan. And that last line is where I’d start because it goes right back to what we were just talking about. Your team should be walking alongside you for this, asking the right questions, asking the right questions and getting that conversation going. Now, President Kennedy said, “The time to repair the roof is when the sun is shining.” And that’s really the whole point of this checklist. Nothing here is urgent today. Nobody’s forcing you to do any of this week or any of this, you know, just this week. But that’s exactly the right time to do it because the alternative is working through these questions trying to get these answers in the four weeks before year end or the month before you get a job offer or you know the week before a large van or large vest lands and suddenly you need a good answer. The those are all the same questions. They’re just much harder to answer well you know when the clock is running. So, pick an evening in the next couple weeks, put an hour on the calendar, and work down you know, those first nine and be ready to address the next ones. And if you get through them and the answers raise more questions than they settle, that’s not a sign you did anything wrong. That’s just your sign that a broader conversation needs to be held. So, we have covered a lot of ground today. And if you’re walking away with even just one question about your own situation, that’s exactly the conversation we want to have with you. I encourage everyone to take advantage of a free 15-minute phone call with here with us where we can dive into your specific plan, get to know your world and see if we can help guide you and your family through that next financial chapter. That link is in the chat right now. Grab a time that works for you and our team will be ready to help. Us advisers at Savant love this conversation because there’s so much complexity to it and so many layers and making complexity easy is exactly what we do. Now, we’ve got a few minutes left here today, so let’s jump into a few of the great questions we’ve gotten in the chat throughout the presentation. Matt, where should we start? All right. Thanks, Evan, and thanks for sticking with us, everybody. Looks like the first question here, I know I’m I know I’m too concentrated, but I’ve held this stock a long time, and the capital gains bill would be enormous. Isn’t that a reason to keep holding?, so it’s the most common reason that people don’t act and it’s worth taking seriously rather than waving off. But if you flip it around, you know, if you’re holding a position because selling costs you 20% in tax, you’re accepting 100% of the risk to avoid 20% of the cost. And so the tax doesn’t go away by just waiting. It usually just gets bigger and bigger as the position keeps growing. I mean, the good news is that the bill is rarely as fixed as it feels. You can spread the sale across multiple tax years, kind of like we talked about earlier. You can pair it with harvesting losses elsewhere in the portfolio. We also touched on that. If you give it to charity, the most appreciated shares that have made the most money are the best ones to give typically. And you may not then you may not have to sell all of it, but just enough to get the plan to work. So, that’s why we model it out, you know, the tax cost across, you know, several different tax years rather than treating it as just one number. It’s usually a lot more manageable, to spread it out, you know, than it looks, you know, in a single lump sum. Nice. All right, let’s take a look at the next one here. My company stock is down a lot from where it vested. Should I really sell now at a loss? That is a tough one, and I understand this instinct completely. This definitely brings emotion and like we talked about before that bias into there. But I would gently challenge the framing on this one. You’re not selling at a loss relative to what you paid because the tax basis reset when invested. You’re selling relative to a high watermark you’re kind of anchored to, right? And the market has no memory of that number. Here’s the reframe I’d offer here. If the position were in cash today, would you buy the stock back at this price? Same question we kind of asked earlier. And a down position is actually the cheapest time to fix concentration because the tax cost of diversifying is really at its lowest, right? You can use that to your advantage. You may even have a harvest harvestable loss that you can use, you know, like Matt walked us through against other gains, right? You can use you know that loss to, as they say, make lemonade from lemons. Waiting to get, you know, back to even here, which is a very common thing that people try to do. It’s a very common instinct. That’s the one that keeps you concentrated the longest is kind of just waiting to get back to those right numbers. So, you know, roundabout way of saying I think it’s about kind of zooming out, taking advantage of the situation, making the most of it, and not being anchored to trying to get back to certain prices. Again, let your planning drive your strategy with that one.

All right, thanks Evan. It looks like we have another one here. What happens to my unvested shares if I leave or if I get laid off? So, we touched on this some earlier. So, it really depends on the plan, but there’s a pattern. If you leave voluntarily, typically unvested RSUs are almost always forfeited. You know, no exceptions for how close you were to the next vest date. U, but if you’re laid off, some plans build in, you know, it’s yeah, some plans build in accelerated vesting, for example, or a shorter extra window, but that’s written into the specific plan document. You really have to look at that. Not something that you can just assume in every case. Vested shares, they’re typically yours, you know, either way. But vested options usually come with a short exercise deadline. Typically, it’s 90 days, after you terminate employment, before they’re at risk of expiring worthless. So, you really got to keep an eye on that timetable. You know the mistake probably the mistake that we see most often is people learning this for the first time during you know their severance conversation with their employer. So, just you know the best thing to do is just to read that clause in your grant agreement you know now or sooner than later while it’s just curiosity and not a decision that needs to be made under pressure. All right it looks like Evan we have one more question here. Did you want to take that one? Yeah. Let’s see. All right. So, I’m a few years from retiring and most of my net worth is in my company stock. Does that change any of this? Absolutely. It changes almost all of it. That’s a great question. Everything we talked about today matters more the closer you get to retirement because the thing you lose is time to recover, right?, things we can’t get back. That’s a very important great question to ask. If you’re 35 and you know your position drops by half, like we said, that’s painful, but your plan can survive, right? You can you know, do different things to make up for that and get back on track over time because you have decades of earnings ahead more grants coming and things that can you know fill in the gaps. If you’re three years out potentially from income dropping off completely and being in full retirement, that same drop in your assets that you’re, you know, potentially having to live off of, that same drop can move your retirement date by a lot, right? And there’s no next grant to backfill that. That’s sequence risk here, honestly. And concentrated stock is one of the sharpest versions of it. So, if you’re in that window, I would definitely move this up on your list. That 10 to 20% range we talked about is a general guidance. But as you approach retirement, most people should be looking frankly at the lower end of it. As we had said before, concentration can help build wealth, but diversification is what’s going to help you keep it. So, you know, definitely want to take a good fair look at that. As you approach retirement, I think all of these principles, all of this conversation and pieces that we talked about today just become that much more important. Because we want to make sure that we’re making the right decisions at the right time. And making sure that your plan in retirement is really set up for success and on a good trajectory. So, I think that’s all we got for today. We’re going to go ahead and have to cap it there. Want to just say thank you to everyone for coming out and spending some time with us today. I hope you found this session very helpful. If at any time you’re looking for more info about Savant, about what we do for these different areas, check out our website at savantwealth.com or, you know, to learn more or go ahead and schedule that 15-minute phone call with us. We’d love to talk to you. Thanks again for being here today, and I hope you guys have a great day ahead. We’ll see you next time.

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