Managing Concentrated Stock Positions: A Guide for High-Earning W-2 Families

By Kevin Luu, Co-Founder and Chief Learning Officer. Reviewed on 2026-09-30.

Managing a concentrated stock position means deciding how much of one company you are willing to own, then reducing the rest in the order that costs the least tax: recently vested shares first, low-basis shares over several tax years, and the lowest-basis shares used for charitable giving. For a W-2 family whose wealth built up through RSUs and ESPP purchases, the tax cost of selling is usually smaller than they expect, because shares that vested recently have a cost basis close to today’s price.

This guide is for a household earning $750,000 to $3 million in California or Washington with most of its savings in one employer’s stock. It covers how to size the problem, the order of sales, what it costs in each state, the tools that rarely fit employees, and what to write down for your children.

Why concentration is a bigger risk for employees than for other investors

An engineer at a large tech company with half her portfolio in employer stock is not taking one bet. She is taking the same bet three times. Her salary, her unvested RSUs and her vested shares all depend on one company. If the stock falls sharply, it is often during the same stretch when layoffs happen, refreshers shrink and the job market in her field is weakest.

That is why the useful question is not “will this stock keep going up?” It is “what happens to our plans for the house, the kids’ schools and the year one of us takes off if this stock drops by half and stays there for five years?” If the answer is that the plans break, the position is too large, whatever the stock does next.

Count all three layers when you size it:

• Vested shares in your brokerage account, including old ESPP lots.
• Unvested RSUs and options, which you will receive only if you stay and which are already tied to the same price.
• Future pay, which depends on the company doing well enough to keep your team funded.

The rule that settles most of the problem: holding vested RSUs is a choice to buy

When RSUs vest, the full value is taxed as wages and your cost basis becomes the market price on that day. From that moment, keeping the shares is economically the same as receiving a cash bonus and using it to buy your employer’s stock. Most families would never buy that much of one stock with a bonus, yet they keep it by default.

So the first step is a standing rule for new vests: sell at vest, or within a short window, unless the family has decided in writing to keep a set amount. Because the basis equals the vest price, a prompt sale usually produces little or no extra gain. Our guides on how to calculate RSU value and sell to cover versus same day sale cover the mechanics. One caveat: 22% federal withholding at vest is usually below the real tax at the 35% and 37% brackets, so set aside part of the sale proceeds for April.

Worked example: a $1.1 million California household with half its savings in one stock

Assumptions (hypothetical, rounded): a married couple in Cupertino filing jointly, children aged 4 and 8. Combined W-2 income is $1,100,000 including RSUs. They have $3,000,000 of investable assets: $600,000 in 401(k) accounts and $2,400,000 in a brokerage account, of which $1,500,000 is employer stock. That is 50% of everything they have invested, before counting unvested grants. They decide on a family limit of 10% of investable assets in any one company, about $300,000, so roughly $1,200,000 needs to move.

Their employer shares sit in three groups of tax lots:

Step 1: sell lots A and B now ($750,000). At this income the household is in the 37% federal bracket (over $768,700 of taxable income for 2026), pays 20% on long-term gains (taxable income above $613,700 for 2026) and owes the 3.8% Net Investment Income Tax (MAGI above $250,000). California taxes all capital gains as ordinary income, and with taxable income above $1,000,000 the marginal state rate is 11.3% plus the 1% Behavioral Health Services Tax, or 12.3% (2025 schedules, the latest published).

• Federal on the short-term gain: $10,000 x 40.8% (37% + 3.8%) = $4,080
• Federal on the long-term gain: $150,000 x 23.8% (20% + 3.8%) = $35,700
• California on both: $160,000 x 12.3% = $19,680
• Total: about $59,460, or 7.9% of the $750,000 sold

That is the key finding for most RSU-heavy families: more than half of the excess can be moved for less than 8 cents on the dollar, because recent lots carry little gain.

Step 2: spread lot C over two later tax years. To reach the 10% limit they still need to sell about $450,000 of lot C, where 73% of the value is gain. Selling $225,000 in each of two years realizes about $165,000 of gain per year:

• Federal: $165,000 x 23.8% = $39,270 per year
• California: $165,000 x 12.3% = $20,295 per year
• Total about $59,565 per year, or 26.5% of the shares sold

In California, splitting lot C saves little tax here, because their taxable income stays inside the 11.3% bracket (up to $1,485,906 for joint filers, 2025) either way. The reason to split it is to spread price risk and leave room for the charitable gifts below.

Step 3: give lot C shares instead of cash to charity. The family gives about $40,000 a year. If they give $40,000 of lot C shares to a public charity or donor-advised fund instead of writing checks, they skip the tax on about $29,300 of gain, roughly $10,600 a year at a combined 36.1%, and use the $40,000 of cash they would have given to buy diversified funds. For shares held more than one year, the deduction is generally the fair market value, limited to 30% of AGI for gifts of capital gain property to public charities (IRS Publication 526).

The same sale in Washington

Move the family to Bellevue and the picture changes. Washington has no tax on wages in 2026, and its capital gains tax applies only to long-term gains above a standard deduction of $278,000 (2025, the latest figure published by the Department of Revenue). The rate is 7%, rising to 9.9% on taxable gains above $1,000,000.

In Washington, timing sales to stay under the annual deduction is worth real money. One change matters for this reader: Washington has enacted a 9.9% income tax on AGI over $1,000,000 starting January 1, 2028 (WA DOR). How it will treat capital gains is still pending guidance, so a multi-year sale plan that runs into 2028 should be revisited once the rules are published.

Order of sales: a decision checklist

1. Set the limit first. Pick a maximum share of investable assets for any one company and write it down. The number matters less than having one before the stock moves.
2. Stop adding. Sell new RSU vests promptly and decide whether ESPP shares are sold at purchase or held for a qualifying disposition (see whether to sell ESPP or RSU shares first).
3. Sell lots with losses or small gains. Choose specific lots with your broker rather than the default method.
4. Wait for lots close to one year. A lot a few weeks from long-term status may be worth holding until it crosses “more than 1 year” (IRS Publication 550), if the family can stand the price risk meanwhile.
5. Spread the lowest-basis shares over several tax years, especially in Washington, and use them for charitable gifts.
6. Reinvest in a diversified mix that does not quietly rebuild the bet, such as a sector fund heavy in your employer.

Mistakes that cost RSU families money

• The wash sale trap. If you sell employer shares at a loss and acquire substantially identical shares within 30 days before or after, the loss can be disallowed (Publication 550). An RSU vest or ESPP purchase inside that window can trigger it. Time loss sales away from vest and purchase dates.
• Waiting for the stock to “come back”. The tax on lots A and B was under 8% of their value. A 20% drop while waiting costs far more.
• Giving shares to the kids to save tax. A child who receives appreciated stock generally takes the parent’s cost basis. For 2026, a child’s unearned income above $2,700 is taxed at the parents’ rate, so selling a large gift inside a UTMA account rarely saves much. Gifts above $19,000 per donor per child (2026) also need a gift tax return.
• Assuming hedges are available. Collars, prepaid forwards and loans against shares are common answers for founders, but many public companies bar employees from hedging or pledging company stock. Read your insider trading policy before anyone pitches you one. Exchange funds usually require high asset tests and lock up money for years.
• Ignoring trading windows. Executives and others with access to inside information can often sell only in open windows. A Rule 10b5-1 plan sets sales in advance and now includes a mandatory cooling-off period before the first trade.

What to write down for your children

A sale plan like this is a decision your children will never see unless you record it. One page is enough: the limit you set, why you chose it, which lots you sold first, what you gave away and how you felt when the stock rose after you sold. That last line is the most useful one for a teenager to read someday, because it shows that a good decision can look wrong in hindsight. As Kevin Luu puts it: “Your kids don’t need to inherit your portfolio. They need to inherit your decision-making process.” In the FamilyKnowledge® System, this page is a Decision Memo, filed next to your estate documents.

Common questions

How much of one stock counts as concentrated?

There is no legal definition. The practical test is whether a deep, lasting drop in that one stock would force you to change plans you care about, such as a home purchase, private school or a career break. Remember to count unvested RSUs and the fact that your paycheck depends on the same company. Many families settle on a written cap well below what they hold today.

Should I hold shares until every lot is long-term?

Only for lots that are close. At the top federal bracket the gap between short-term and long-term rates is 17 percentage points (37% versus 20% for 2026), but California taxes both at the same rate. Holding a lot that is months away from long-term status means carrying the full price risk to save a fraction of the gain.

Is donating stock better than donating cash?

For shares held more than one year, usually yes. You generally deduct the fair market value and never pay tax on the gain, then use the cash you would have given to buy diversified investments. Gifts of appreciated stock to public charities are limited to 30% of AGI each year, with any excess carried forward.

Next step

Pull a lot-level report from your brokerage account this week and sort it by gain per share. That single list shows how much of your concentration you can reduce cheaply. If you want help turning it into a dated sale plan across both spouses’ accounts, the investment risk management and tax management work at Age Five Family Office™ starts with a Tax & Wealth Assessment.

This is general education, and the right move depends on the family’s full picture.

Written by

Kevin Luu

Co-Founder and Chief Learning Officer, Bright Advisers

Kevin has advised high-income W-2 tech and biotech families since 2015, and leads the education-first Age Five Family Office from Brea, California.

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