Some Utah technology employees have watched their company stock decline significantly. For employees whose compensation includes RSUs, stock options, ESPP shares, or concentrated company stock inside a 401(k), it can be frustrating to see years of hard work tied to a falling share price. However, a declining stock price does not mean there are no planning opportunities.
The first step is to evaluate the company from a strategic perspective rather than an emotional one. Ask yourself one important question: “If I were looking to invest today, would I choose to buy my company stock at its current price?” If the answer is yes, it may be worth exploring whether adding more stock still fits your financial plan. If the answer is no, it may be time to reconsider the position.
So, your company stock is down. While that can be frustrating, a lower share price may create several tax and planning opportunities worth considering.
Diversification
Many tech employees become heavily concentrated in their employer’s stock. Even if you remain optimistic about the company’s future, reducing concentration risk may still be prudent. Diversifying a portion of company stock into a broader portfolio may help reduce volatility. This can be done through an outright sale, which may trigger taxes, or through an exchange fund, which may defer taxes.
Buy more stock
If you still believe in the company’s long-term prospects, and if your overall financial picture can support the added risk, buying more shares may be an opportunity. The old investment mantra still applies: buy low, sell high.
Tax-loss harvesting
If vested company shares are held in a taxable account, shares with losses can be sold to help offset gains elsewhere in the portfolio. This can help reduce concentration risk. If losses exceed gains, up to $3,000 can be used to offset ordinary income each year, with additional losses carried forward to offset future gains.
Restricted stock and RSUs
Restricted stock and RSUs are generally taxed when they vest. Once shares are vested and held in a taxable account, they should be evaluated like any other investment holding. If the stock has declined since vesting, tax-loss harvesting may be worth considering.
Stock options
Some employees hold stock options that are in the money but have chosen not to exercise them because the cost has been too high. A temporary decline in the stock price may create an opportunity to exercise and start the one-year holding period for potential long-term capital gains treatment on future growth. Be aware that option planning can create complex tax consequences, especially with incentive stock options.
Net Unrealized Appreciation and Depreciation
For employees holding company stock inside a 401(k), Net Unrealized Appreciation, or NUA, planning is often discussed after a stock has risen substantially. However, market declines may create a different opportunity. Depending on plan rules, selling the stock inside the plan and repurchasing it at a lower price may reset the cost basis, potentially allowing more future appreciation to qualify for long-term capital gains treatment under a future NUA strategy.
Stock downturns can create stress, but they can also create planning opportunities. If your company stock has declined, our advisors can help you evaluate your options and make a plan for navigating concentrated stock positions.
