How To Diversify Your RSUs In A Tax-Efficient Way?

True Root Financial is a Fee only Financial Advisor and Financial Planner based in San Francisco, CA. We serve clients across the globe.

As a tech professional in San Francisco, a significant part of your wealth is likely tied up in RSUs. While these equity grants can be a powerful asset, relying too heavily on your employer’s stock exposes you to concentration risk—putting your financial future in jeopardy. In this blog, we’ll break down smart strategies to sell, transfer, and reinvest your RSUs while leveraging tax-saving tactics to help you keep more of what you earn.

If you are a tech professional interested in learning how we can help you claim your financial independence by investing wisely, minimizing taxes, and maximizing your equity compensation, please book a no-obligation call here.

Watch the video below to discover how to diversify your RSUs and other equity compensation in the most tax-efficient way, while unlocking powerful strategies to keep more of your wealth and reduce your tax burden.

Key Takeaways:

• Spread RSU sales across years to avoid higher tax brackets and benefit from long-term capital gains
• Use RSU income to contribute to 401(k)s or IRAs, reducing your taxable income
• Gift RSUs to family or use donor-advised funds to support charities and reduce your tax bill.

1. Timing Your RSU Sales Strategically

Selling your RSUs at the right time can significantly impact your tax bill.

• Incremental Sales: Instead of selling all your RSUs in a single year, consider spreading the sales across multiple years. This helps you avoid jumping into a higher tax bracket, keeping your overall tax liability lower
• Plan Around Low-Income Years: Consider selling RSUs during years when your overall income might be lower, such as during a sabbatical or after a job change
• Long-Term Capital Gains: If you hold your RSUs for over a year after vesting, you’ll benefit from the long-term capital gains tax rate, which is generally lower than the short-term rate.

2. Tax-Loss Harvesting

Tax-loss harvesting involves selling investments at a loss to offset gains, including RSU sales.

If you hold other investments that have decreased in value, you can sell those to offset the gains from your RSUs. This reduces the total taxable gain, helping to lower your tax liability.

Tax-loss harvesting can significantly reduce your overall tax burden if executed effectively.

3. Deduction Bunching

Deduction bunching involves grouping deductible expenses into a single year to exceed the standard deduction and increase your itemized deductions. If you’re facing a large income spike due to RSU vesting, you may want to bunch charitable contributions or medical expenses into that year to maximize your deductions. This lowers your taxable income, reducing your overall tax bill.

This strategy can be particularly useful when you face high-income years due to a large RSU vesting event.

4. Donor-Advised Funds (DAF)

If you plan to give to charity and want to maximize your tax benefits, a donor-advised fund (DAF) is a great strategy.

How DAFs Work:

You can contribute appreciated RSUs to a DAF, receiving an immediate tax deduction for the market value of the contribution, while avoiding capital gains taxes on the growth of those shares.

You retain control over when and where the donations are made, giving you the flexibility to distribute funds to charities over several years.

Using a DAF allows you to support your favorite charities while minimizing your tax liability.

Can I Gift RSUs to Someone to Minimize Tax Liability?

While you can gift vested RSUs to individuals, gifts to family members are not tax-deductible unless you give to a qualified charitable organization. The recipient will be responsible for taxes when they sell the gifted RSUs, based on your cost basis and the stock’s value at the time of the gift.

Consider transferring some of your RSUs to your spouse, especially if the shares have appreciated significantly since vesting. Utilizing the inter-spousal transfer exemption allows you to transfer shares tax-free. Your spouse can then sell the shares, benefiting from their own capital gains tax allowance.

Building a Diversified Portfolio

Once you’ve sold your RSUs and reinvested the proceeds, the next step is to build a diversified portfolio.

• Asset Allocation: Ensure that your portfolio includes a variety of asset classes such as equities, bonds, real estate, and even international investments. Diversification reduces your exposure to any single sector’s risk.
• Maximize Contributions to Tax-Advantaged Accounts
• Using the proceeds from RSU sales to contribute to tax-deferred accounts such as your 401(k) or IRA can help you reduce your taxable income and defer taxes.
• 401(k) Contribution Limits: In 2025, you can contribute up to $23,500 to a 401(k) if you’re under 50, or $30,000 if you’re 50 or older (including the catch-up contribution). This contribution lowers your taxable income for the year.
• IRA Contribution Limits: For 2025, the maximum IRA contribution is $7,000 if you’re under 50 and $8,000 if you’re 50 or older.

By using the proceeds from RSU sales to fund your 401(k) or IRA, you can significantly reduce your taxable income and build a tax-efficient retirement portfolio.

Avoiding Common Pitfalls

To make the most of your RSU diversification strategy, avoid these common mistakes:

• Selling All RSUs at Once: Selling all your RSUs in one year could push you into a higher tax bracket, increasing your overall tax liability
• Holding RSUs Too Long: While long-term capital gains are beneficial, holding all of your RSUs indefinitely may expose you to unnecessary risk from company-specific volatility
• Ignoring Professional Advice: RSUs can be complex, and tax laws change frequently. It’s always a good idea to consult with a financial advisor who specializes in RSUs and tax strategies.

Wrapping Up: Your Next Steps

Now that you’ve explored this comprehensive guide on RSUs, it’s time to apply what you’ve learned. Schedule a call below for personalized guidance on optimizing your RSU strategy.

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