3 Steps for Meta Employees to Optimize Their RSUs

Transcript of Webinar

3 Steps for Meta Employees to Optimize Their RSUs


My Journey from a Dot.com Employee to a Financial Planner

I wanna take you back to the late nineties. I was working@the.com. I was sitting in my cubicle, you can see it today. I could hear the sound of people celebrating high fiving each other, the sound of, uh, champagne corks popping. Uh, we had done, uh, what every startup wanted to do in that era. We just had our I P O and everyone was very happy. Um, as time continued, the stock price continued to go up higher and higher, and everyone got happier and happier. Uh, and I actually thought to myself, you know, if this keeps going, uh, I’m gonna be able to retire in my late twenties. Um, but those of you who know history know that the.com bubble burst, I was@a.com. Uh, I held on to my, uh, equity until this company shut down and the stock went to zero.


I learned a couple of important lessons. One is I needed to educate myself about how my equity worked. I had incentive stock options. I didn’t really understand how they worked. I talked to my colleagues. They didn’t understand either. I realized, Hey, I need to educate myself. So I started to take some classes to do that, and that started me down the path to becoming a financial planner, making a career change into financial planning about 10 years ago. And it’s the reason I’m here today and that I built this firm is because I wanna make sure that tech employees like you, you’ve worked at Meta, you’ve worked hard for your RSUs, and you wanna make sure you make the most of them. Um, so that’s why I built this firm, is to make sure you end up in a better place, uh, than I did. Uh, so that’s why we’re here today. So welcome to our conversation. I’m gonna share some slides with you.


And this is three steps for med employees to optimize their issues. My name’s Tom Lo. So you, this is for educational purposes. You should always talk to your professional. So here’s what we’re gonna cover today. I’ll give you just a bit more about my background, and then I’ll walk you through the three steps. So step one is understand how your Med RSU work, how to avoid a big surprise, surprise tax bill. Step two is determine if you have too much, uh, in your meta RSUs. And step three is decide when should you sell your med RSUs. And at the end, we will have live q and a. If there’s any questions, uh, then I’m happy to answer those. Now, I’ve done, uh, a number of these and I find that some people are happy and comfortable to ask, uh, questions during a live session, but there are others who prefer to do that in a, uh, one-on-one setting.


So for anyone who has questions about their specific situation, um, you know, want to chat with me, I’m giving people the chance to schedule a free virtual consultation. So you should see on your screen now, there’s a button which says Schedule now, red schedule, now button. You click on that, uh, it’ll pull up my, um, calendar, and you can put time on there. We will have a quick half hour zoom call, answer any questions you have, talk about your specific situation. Uh, and the one other thing I wanna mention, the reason, uh, this conversation is important is because you should realize that you as a med employee have a rare opportunity using your med RSUs, which have a lot of value to get to, uh, your financial goals much faster than a typical corporate employee. So things like, Hey, how do I buy a house? How do I save for college? How do I make work optional faster? That can all happen much faster, um, because you have the opportunity with your, with your Metal R shoes. Okay? So, um, as I said, uh, as I mentioned, I worked in tech myself. So I worked in Silicon Valley for about 20 years. So I, uh, and I had equity. I understand, uh, what you’re going through. Uh, you have a lot of equity. You may be confused about it or overwhelmed about, Hey, what should I do with this to make sure I make the most of it? And so that again, is why I built this firm. I specialize in working with tech professionals with equity. That’s all I work with. Uh,


Step 1: Understand How Your Meta RSUs Work

Let’s start with step one. Step one is understand how your meta RSU work and how to avoid surprise tax bill. So the way meta, uh, restricted stock units or RSUs work is rsu are simply compensation in the form of METAS shares, okay? And invest over time. Uh, vesting good for most employees is invest quarterly, uh, on the 15th, starting Feb 15th, May 15th, August 15th, November 15th, over four years. You get your initial grant that’s gonna vest every quarter or six, 6.25% at the end of the four years. Your initial grant, uh, has fully vested. Uh, you may get future grants, uh, going forward, and those tend to be, uh, smaller amounts than your initial grant, but it would fall a similar investing schedule.

How are RSUs Taxed?

Now, let’s talk about the tax treatment of r u. So this is important to understand. Uh, when you’re granted, let’s say you start working at meta, you’re granted your RSUs, you get, there’s no tax, there’s $0, uh, ordinary income tax. So however, when you vest on the day that you vest, then your RSUs are treated as ordinary income. That means you get taxed on them just the same as your salary or bonus, okay? On the fair market value of those RSUs on the day you invest. Okay? And just to, uh, highlight this, that is different from other types of employee equity, like incentive stock options or non-qualified stock options. So keep that in mind. RSUs, the day you vest, you get taxed immediately.


Now, for my clients, I’ll tell them, um, this is often helpful, I’ll say to them, look, you can view, uh, your RSUs. It’s, it’s as a cash bonus just happens to be in the, in the form of meta stock, okay? And that’s again, because it’s taxed when it’s vested. Now, let me give you a couple of examples, which will show you why you can think about it as a cash bonus. So let’s just say your R S U version, which is the version you normally have. What happens is meta gives you a hundred thousand dollars in RSUs. You say you’ve vested a hundred thousand dollars in RSUs. Then what meta does is they sell about 40,000 of those RSUs to cover your taxes withholding, and then they leave you with $60,000 in meta stock. So then you own $60,000 in meta stock. Okay? So that’s the RSU version, okay?


Alternatively, let’s look at the cash bonus version, which is, let’s say meta gives you a hundred thousand dollars cash bonus. Okay? They’ll take out their taxes withholding, just like they do with a paycheck. Let’s say they take out $40,000 and they deposit $40,000 into your checking account. Now, what you could do is you could take that 60,000 in cash in your checking out, you go into the stock market and you buy $60,000 worth of meta stock. So you now own $60,000 worth of meta stock. So in both the R S U version and the cash bonus version, you end up with $60,000 in meta stock, exactly the same place. So when I say you can view it as a cash bonus, this example helps you understand why you can think of it that way.


Now, why is that important? Well, that’s because what I ask clients, what you should ask yourself is, well, if meta gave you a cash bonus today, would the first thing you do, would that cash be to go buy meta stock? Okay? Because if the an and most of my clients say no, probably not the first thing, uh, because if you hold your meta RSUs, then it’s the same as buying stock at the current price. Okay? So if it’s not the case where it’d be the first thing you’d do with your cash bonus, then you should consider selling your RSUs. Okay? And specifically when the sell is gonna depend on your situation, right? Your goals, how concentrated you are, your taxes, and we’ll talk through some of those factors, and you should ideally talk to a professional to, to help you understand how to do that. In general, though, I recommend selling as soon as you vest, uh, because again, there’s no immediately on the day vest. So it’s just like salary.


Avoid a Surprise Tax Bill on Your Meta RSUs

Often people come to me and say, Hey, I got a big tax bill that I wasn’t expecting. Uh, what happened? Well, you, the question I wanna ask yourself is have you had your tax taxes on your meta RSUs under withheld? Okay, again, you’re gonna pay ordinary income tax on the market value of your RSUs when they’re vested. So typically that happens at a 22% federal tax rate for your RSUs. So for example, let’s assume you are actually in the, the highest federal tax bracket, which is 37%. Um, then if met is withheld 22%, you still, you have been under withheld 15% on your RSUs. So let’s say you vested a hundred thousand dollars in meta RSUs, you’re still, you still owe the i r s about $15,000 in taxes. Okay? So the way to avoid the surprise tax bill, uh, so with my clients, we usually work with a tax professional.


We’ll make quarterly estimated taxes and then payments on those so that you stay, um, on track for your payments. You get to April of the next year, you don’t have a big tax bill. Uh, and then at a minimum, what I suggest you do is you calculate that yourself if you TurboTax, but you sell enough RSUs to cover those taxes, um, and set aside that as a tax reserve in some safe liquid account, okay? So that come April you can pay your taxes, you have the, the cash to pay your taxes and you won’t be surprised.


So again, I wanna take a moment. This is general advice. So if you have specific questions about your specific situation, then again, um, click on the schedule now button. I’m happy to chat with you about that. Okay?

Step 2: Determine if You Are Highly Concentrated in Meta Stock

Step two, determine if you have too much in your meta RSUs. So I talk with my clients all the time about this concept of concentrated stock. Okay? Concentrated stock position is, is if you have too much of a single company stock, uh, and I define it, my general guideline is if it’s more than 20% of your investible assets, then that’s highly concentrated, okay? And the reason why is because versus a diverse, diversified portfolios is just a ton more risk and volatility, okay? In a single company stock. And here’s a classic example of what this means.

Enron Example: Why You Should Avoid Being Highly Concentrated

This is, uh, a company called Enron. You probably haven’t heard it.


It was a company in the late nineties that, um, that was a high flyer. People loved it. The shares went all the way up to 90 bucks a share. Uh, and then some bad news came out, some accounting issues. Uh, and within a matter of months, stock went to zero. Now, the reason, uh, this is important is because at Enron there were employees who had their 4 0 1 k all invested in Enron. Their match was in Enron. They were also able to buy, uh, Enron stock, uh, outside of the 4 0 1 k. And so there were Enron employees who had most of their, uh, net worth, most of their retirement, all in a single company stock. They were highly concentrated. And so what happened was, when this accounting use came out, stock dropped to nothing. There were employees who had hundreds of thousands, if not millions of dollars disappear, uh, overnight. And so their retirement was gone. That is the real risk of being too highly concentrated. Something that you don’t have control over outside of yourself, uh, happens to your company, uh, and a lot of your net worth or your retirement could go away very quickly.


So how do you, how do you determine, how do you figure out if you have too much in your meta issues? So I’m gonna take you through four steps here to figure that out. Uh, and then we will walk through an example.

How to Calculate if You Are Highly Concentrated in Meta Stock

1. is you just calculate the total value of your invested meta equity, right? Using current stock price.

2. is you calculate the value of your total investible assets, 4 0 1 K. You add all that up, add the value of your meta, of your meta equity.

3. you divide the total value of your me vested meta equity by your total, um, investible assets. You get some percentage of concentration.

4. is, if your concentration is more than 20%, then you’re highly concentrated and you should consider, Hey, how can I diversify that concentration? So quick example, let’s say you get a thousand vested meta RSUs, 300 bucks a share, that’s $300,000 total of vested uh, meta equity.


You add up all your other saving investments, 4 0 1 Ks, it’s $700,000 total. Okay? Then you take your 300,000 of meta vested equity plus your 700,000. That means you have a million dollars of total investible assets. So you di divide your $300,000 of meta value by the million dollars. That means you’re 30% concentrated in your meta stock. 30% is greater than 20% means you’re highly concentrated. And that means you should think about diversifying. Okay? And just for context, again, I only work with tech professionals of equity. That is not unusual for Silicon Valley. I have clients come to me with 30%, 50%, 90%, 95% concentration in a single company stock. Um, so if you’re highly concentrated, it’s not uncommon, but you do wanna make sure you do something about it.


Step 3: Decide When You Should Sell Your Meta RSUs

All right. So let’s say you are highly concentrated. Well, let’s decide when you should sell for meta RSUs. This is probably the, the big question for everybody. Um, so here are, uh, ways that su suggest you think about this.

Have a Need for Cash? Sell Immediately

So first of all, identify if you have any near term valid cash needs. That means I need cash for some reason. Uh, and it’s gonna be near term, which I define as less than a year, a year or two. Um, so examples of this would be, okay, do you have to pay taxes on your equity? So if you vest these RSUs, you’ve been under withheld, you’re gonna have to pay taxes, then that’s something that, that is a valid near term valid cash need if you don’t have an emergency fund. So that’s in case of job loss, some medical, uh, big medical expense.


Uh, you should have that. You know, most clients, I’ll say, I say you should have three to six months worth of living expenses. So if you don’t have that set aside an emergency fund, that’s another good, uh, example. And then a down payment. So let’s say, okay, I’m gonna buy a house in the next year. That’s my goal. I know I’m gonna buy a $2 million house. I’m gonna need put 20% down. I need $400,000 in cash for down payment. That’s also something you want to get in cash. You don’t want to have sitting in stock ’cause you want that cash there so you can buy your house when you’re ready to buy it. So identify if you have any needs like that. And if you do, then what I would suggest is go ahead and sell your RSUs as soon as the next window is open so that those cash needs are taken care of.


Want to Hold Onto Some Stock? Sell Over Time On a Schedule

You don’t have to worry about ’em. Okay? So then the next step would be, ’cause most of my clients will say, well, look, I believe in the long term a future of this company, so I wanna hold onto the stock. So the second step is decide if you wanna keep some percentage of your company stock for the long haul. Meaning you can keep it for 5, 10, 15, 20, the rest of your life. All right? Just ’cause you wanna have some stake, uh, in your company. Uh, so I generally recommend keeping it, uh, say five to 10% of your investible assets. But you gotta figure out what you’re comfortable with. So once you figure out what that is, then you can say, okay, I’m gonna carve that out. So let’s say you decided 10%, then you can take the other 90%. We’re gonna put together a, a selling plan for that.


So the next this, um, that I talk client clients through, one is version one is sell immediately. So next window, just sell everything. Uh, and that is helpful ’cause you don’t have to worry about the risk of the stock going down. Um, and you get your cash immediately and you can figure out what to do with it. Okay? Most of my clients, that’s too much. They’re not ready to do that. Uh, so the next two versions are sell over time on a schedule, okay? And then sell overtime on a schedule, but a variation of that more when the price is higher, less when it’s lower. So let me talk you through that. That just means you say to yourself, all right, I’m gonna sell, um, for example, 25% a quarter over the next four quarters, okay? Now there are a couple of benefits to this.


One is you’re not gonna pick the single wrong day to sell when it’s at some low point. ’cause the stock is gonna go up and down. It’ll probably average out. Um, the other thing is you can spread your taxes out over multiple years. So the tax hit doesn’t all come in one year. Um, but the idea of this is you’re putting your selling plan on autopilot. Um, as soon as the quarter hits windows open, you say, all right, I’m selling the 25%. I’m not worried if the stock is high or low. I’m not gonna try to guess, is it gonna go higher? Is it gonna go lower? You’re putting in autopilot. What you’re trying to do is just minimize the emotion, uh, that is involved in that decision. ’cause there is a lot of emotion, uh, and you’re trying to say, okay, I’m in a calm, rational, logical state right now.


I’ve made the decisions. I’m gonna just execute those decisions when each quarter comes. Okay?

Sell Over Time on a Schedule, But Sell More When the Price is Higher, and Less When It’s Lower

The next version of this sell over time on a schedule is you sell more when the price is higher and less when it’s lower. And so you can set price bands and say, okay, if it falls within this band, I’m gonna sell this much. So for example, you could say, all right, if the stock is $250 or less, I’m gonna sell 15%. It’s, if it’s between 2 52, 3 50, I’m gonna sell 25%. If it is greater than three 50, I’m going to sell 50%. Okay? You need to figure out what the bands are, what you’re comfortable with. But again, you’re putting in an autopilot quarter comms, you look at where the price is. Let’s say you put those bands, it’s 300, you go 300, I’m gonna sell 25%. You sell 25%, okay?


And you don’t, again, try to think about is the price higher or low? And you’ve kind of done that because you’ve set, um, if the price is higher, you’re gonna sell more. If it’s lower, you’re gonna sell less. Okay? So those are the ways I suggest you think about, um, putting together selling plans. So start with those near term valid cash needs. Decide if you wanna keep some percent long term, and then use one of those selling plans. Sell immediately, sell over time on a schedule. Sell over time on a schedule more when the price is higher, less when it’s lower.


So those are the three steps you guys need to take. Um, again, if you have questions about your specific situation, just uh, put time on my calendar here. Uh, go to this u r l or click on the schedule now button. Uh, and I’m happy to have that conversation with you. No cost, no obligation, uh, happy to answer those questions. Now, I give you, share one more story with you, and it’s what I call the happy past story. Uh, just to give you an example of what, uh, this looks like when, when things work out well. So I have a client, uh, couple, one of the, um, the husband works at a big tech company. A couple came to me. They had about $5 million, uh, in our issues. Uh, and client said to me, look, uh, I’m confused about how to use these RSUs things we want to do, but I want to know the best way to do it so that we can maximize the value, minimize taxes.



So I sat down with a couple young family, two young kids, uh, we put together an overall financial plan that highlighted some of the key goals they had. Uh, and then we put together a selling plan to say, okay, how are we going to, uh, diversify, uh, your RSUs and use them to reach your goals, um, as quickly as you want to. Okay? So we put together the plan. We started to sell. Uh, first goal. First big goal was, Hey, I want to buy a house here in the Bay Area. As we all know, it’s expensive. So what we did is help, help the couple understand, okay, how much house can you afford? How much down payment do you wanna put down? How can you pay it? So we sold, they were able to buy a house, uh, in the Bay Area, uh, that they’re very happy with their kids love, okay?


Second thing is, hey, help us, uh, take care of the kids. So next thing we did is we, um, helped them understand, okay, for college, how much do we need to save? And we funded a that, uh, college will be covered. And then the other thing that’s important to take care of the kids is, um, we, we analyze life insurance, made sure that if something happens to them because the kids are dependent on their income, that they would be taken care of financially. Okay? Uh, we’ve got life insurance in place. And then related to that, if something happened to both, um, parents, then we made sure that they had estate planning in place will, so that a guardian was named, uh, in case something happened to both of ’em instead of the state deciding, which is what happens. And then finally, the last important goal for them was how do we make work optional, uh, early, you know, uh, and we put together plan. They now have know how much they need to save, have investments in place, uh, and they’re on track to make work optional early, so in their forties instead of in their sixties. Um, and that means that at that point they’ll be able to work if they wanna work. Um, but it’s optional, meaning they’re not gonna have to go to work to pay bills. So this is an example of, uh, um, um, get clear on how to use those to reach their financial goals. And this couple is living happily ever after.


Okay? So I want to take a moment, uh, to answer any questions, see if there’s any, uh, questions. So again, if you, uh, want have any questions for me, then and you wanna talk about your situation and put time in my calendar. So let me take a moment, see if there are any questions out there. Uh, you can drop it into the chat. I’m happy to answer it. Okay. Um, I’m not seeing anything. So let me just, uh, do the following, which is thank you for coming. Um, hope this was helpful. Uh, if you are registered then you’ll get a link to the recording this. Uh, and um, if you think this would be helpful for any of your colleagues, then feel free calendar or you can email me here, um, at vista financial planning.com. Okay? Great. Thank you everybody.