Financial planning for
tech workers with equity.

The total comp trap

Tech companies advertise total compensation: base + bonus + equity. Reality:

• Base: certain.
• Bonus: likely but not guaranteed. "Target" bonuses often pay less than target.
• Equity: market-dependent, company-dependent, vestingvestingThe schedule by which you earn the right to keep employer contributions or stock grants. You usually need to stay at the company for a set period before the money is fully yours.Full definition-dependent. Can be zero if the stock falls.

Rule: build your lifestyle on base salary. Invest all equity proceeds. Treat bonuses as savings, not income. This single rule protects people through layoffs, tech-stock crashes, and company acquisitions that go sideways.

Concentration risk

At peak, many tech employees have: income from one company, 401(k) with employer matchemployer matchFree money your employer adds to your 401k when you contribute. Not capturing the full match leaves guaranteed returns behind.Full definition in company stock (or the option to hold company stock), RSUsRestricted Stock Unit (RSU)Company shares your employer promises to give you over time, usually a chunk every year for four years. The shares are taxed as regular wages on the day each chunk lands in your account.Full definition in the same company. All three legs of the financial stool from one source.

If the company declines, everything is at risk simultaneously. Enron employees learned this lesson verify×DON'T TRUST, VERIFYClaim: Enron employees lost both jobs and retirement accounts when the company collapsed in 2001 due to heavy 401(k) concentration in company stock.Verify at: DOL Enron retirement assets ↗Enron collapse led to significant reforms in 401(k) diversification rules.. Current tech employees at single-company concentration are taking the same shape of risk, just with a different logo.

The diversification mandate

• Sell RSUs at or shortly after vesting. The tax is paid at vest regardless; holding adds risk, not tax savings.
• Redirect sale proceeds into diversified index funds.
• If bullish on the company: keep no more than 10 to 15% of total portfolio in any single stock.
• Avoid holding employer stock in your 401(k) when the option exists to hold index funds instead.

Tax planning around vesting

RSU vesting is ordinary income. See Equity Compensation for the mechanics.

Planning opportunities

• Bunch charitable giving in high-vest years (see Tax Strategy)
• Maximize 401(k) contributions to offset high vest income
• Mega backdoor Roth if your plan allows
• For very large positions: consider charitable remainder trusts or donor-advised funds
• Consider QSBS exclusion if your company qualifies (Section 1202) for startup founders/early employees

The location question

Vesting a large amount in a high-tax state? If you are planning to move, timing relative to major vest events matters. California Franchise Tax Board aggressively audits former residents who moved near major vest events. Document the domicile change thoroughly. See Geographic Arbitrage.

Company IPO: what to do

Typical IPO lockup: 180 days before you can sell. After lockup expires, your concentration risk just became a lot more liquid, and you have a decision.

• What is my cost basiscost basisWhat you originally paid for an asset. Used to calculate how much profit (or loss) you made when you sell.Full definition? (What I paid at exercise or was taxed at vest)
• What is my capital gainscapital gainsThe profit from selling an asset for more than you paid for it. Taxed differently depending on how long you held the asset. exposure if I sell now?
• What is my concentration in this stock vs total net worthnet worthEverything you own (assets) minus everything you owe (debts). The most comprehensive measure of financial health.Full definition?
• Am I locked out of trading windows for other reasons (insider status)?

General principle: diversify after lockup. You survived the private-company stage. You do not need to bet the retirement on the first 90 days of public trading.

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