I work for a major tech company (worth over $1 trillion). Over time, I’ve accumulated more than $500k in company stock, and I’m sitting on about 100% gains based on my cost basis.
What’s the best way to exit this position while minimizing taxes? I get new company stock every quarter and ESPP deposits after the quarter ends, which means I’m receiving stock 8 months out of the year. Because of this, there’s never a 61-day period where I don’t get new stock.
I’ve been selling new allocations as soon as I get them and then diversifying the proceeds, prioritizing stocks with the highest cost basis. Is there anything else I should consider doing?
I was in a similar spot years ago with $500K all tied up in company stock. I didn’t want to sell because of the tax hit, and when the stock started dropping, I thought I’d wait for it to go back up. It never did, and I lost $250K. Don’t let taxes hold you back from diversifying.
That’s probably the real takeaway here. While I trust the company will do well long-term, concentration risk is real, especially since my job and my stock are tied to the same company.
I’ll probably start selling based on long-term capital gains and move on from there.
If you’re not in an executive position, you could also buy some downside protection with puts (as long as it’s allowed by company policy). It’s like buying insurance—hopefully, you don’t need it, but it’ll soften the blow if the stock drops. But yeah, don’t let taxes keep you from making smart moves.
Exchange funds aren’t usually the best solution, especially not for $500k. You’d need $5M for it to make more sense. Fees can be 1-2%, and the 7-year lockup period is a big downside, especially if you’re not already financially secure. It’s generally better for those with much higher net worth.
Unless you’re dealing with something like stock options, where you sell anytime you have liquidity. Taxes are less of a concern when it’s about taking a profit.
There are funds that use leverage to generate losses you can use to offset capital gains. They have high minimums and fees (around 2%), but it might be worth considering if you’re looking to sell a big chunk of stock. My private wealth manager introduced me to this, and it’s helped me sell gains tax-neutrally.
Is the idea to switch from one stock to another, similar one without triggering taxes? So you start with a single tech stock and end up with a basket of them?
Exactly. Let’s say you buy $100 of SPY and short $100 of SPY. This position shouldn’t make or lose money (ignoring costs), but at the end of the year, one side will have gained or lost. If SPY went up, your short position lost. You sell the short position for a capital loss, then short something similar, like a different set of S&P stocks. The loss offsets your actual gains.