3 Vanguard and Schwab ETFs Tech Workers Should Buy During RSU Vesting Years

"RSUs vest as ordinary income at the full market value on the vesting date, regardless of whether the worker sells a single share. This income stacks on top of a base salary already sitting in the upper brackets."

"A tech worker who spent two decades maximizing a traditional 401(k) accumulates a large pre-tax balance. When required minimum distributions begin, those withdrawals are hit as ordinary income, potentially stacking into the 37% bracket in both phases."

"The mathematically correct response for many workers is to maximize traditional 401(k) contributions during RSU vesting years to partially offset that income, then execute Roth conversions during any sabbatical, layoff, or early retirement window before RMDs begin."

"Tech workers with significant company stock should evaluate the Net Unrealized Appreciation (NUA) strategy if those shares are held within the company's 401(k) plan, as NUA applies exclusively to shares distributed directly from a qualified plan."

Tech workers receiving restricted stock units (RSUs) encounter an income recognition issue that financial planning often overlooks. RSUs vest as ordinary income at market value on the vesting date, adding to an already high salary. This can push total compensation into the 37% tax bracket. Additionally, large 401(k) balances lead to ordinary income during retirement, compounding tax burdens. To mitigate this, maximizing 401(k) contributions during RSU vesting years and considering Roth conversions during breaks can be effective strategies. Understanding the Net Unrealized Appreciation (NUA) strategy is also crucial for those with company stock in their 401(k).

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