Disclaimer: This article has been provided for informational purposes only and should not be considered as investment advice or as a recommendation. This material provides general information only. OnePoint BFG does not offer legal or tax advice. Please contact legal counsel or your tax advisor to recommend the application of this general information to any particular situation or prepare an instrument chosen to implement the design discussed herein. Circular 230 notice: To ensure compliance with requirements imposed by the IRS, this notice is to inform you that any tax advice included in this communication, including any attachments, is not intended or written to be used, and cannot be used, for the purpose of avoiding any federal tax penalty or promoting, marketing, or recommending to another party any transaction or matter.
Restricted Stock Units (RSUs) can accelerate wealth—and decision pressure. When trading windows open and close, company insiders and executives often face overlapping trading restrictions, preclearance requirements, and the constant risk of insider trading allegations. A rules-based 10b51 trading plan replaces ad hoc, gut-feeling choices with a repeatable trading strategy aligned to your financial goals, tax planning, and diversification targets. The objective is simple: convert company stock into a diversified portfolio through a disciplined process that can operate even during blackout periods—without relying on market timing or nonpublic information.
A Rule 10b51 trading plan is a written set of preset trading instructions you adopt when you are not aware of material nonpublic information (MNPI). Once in place (and after the cooling-off period), trades execute per the plan—regardless of later MNPI—providing an affirmative defense to insider trading claims when designed correctly. Corporate insiders (directors, Section 16 officers, and employees subject to blackouts/preclearance) typically use these trading plans to automate sales, manage concentration risk, and enable diversification across market cycles.
Recent SEC amendments (effective 2023) added guardrails:
Mandatory cooling-off periods (generally 90–120 days for directors/Section 16 officers; 30 days for other participants).
A certification (for directors/officers) that you are not aware of MNPI and are acting in good faith.
Limits on overlapping plans and singletrade plans (only one singletrade plan per 12 months).
Ongoing good faith expectations.
What a 10b51 plan does: It addresses trading windows, insider trading laws, and decision fatigue. It does not: eliminate taxes, guarantee perfect pricing, or override company policies. You still coordinate with legal, compliance, and your brokerage to meet documentation standards and approval timelines.
Know your RSU lifecycle: grant → vest/settle → shares delivered → sale.
Taxation at vesting: RSUs are taxed as ordinary income when they vest; the value appears on your W2 and is subject to federal/state income tax plus FICA. Employers generally withhold at 22% for supplemental income under $1 million and 37% above that, which may be insufficient if your marginal rate is higher. Plan for estimated payments or a sell-to-cover design to avoid underpayment surprises.
After vesting, future gains/losses are capital gains (short or long term depending on holding period) based on your cost basis (the FMV at vest). Careful recordkeeping avoids double taxation.
Withholding mechanics—sell-to-cover, share withholding (net settlement), or same-day sale—affect how many shares you actually keep and your cash flow for tax planning.
Finally, quantify concentration risk: RSUs can quietly dominate portfolio exposure. Your plan should define a target allocation for company shares relative to investable assets and your broader retirement planning.
Step 1: Define the objective. Be explicit: liquidity for goals, scheduled diversification, tax planning (bracket awareness, estimated payments), or funding retirement/tuition/home purchase. Align the plan with your wealth management framework.
Step 2: Inventory the moving parts. Map your RSU vesting schedule, existing stock options, ESPP shares, blackout calendars, and upcoming liquidity events (e.g., lockup expiration after a public offering). Ensure compliance with insider trading policies and preclearance requirements.
Step 3: Choose the selling framework.
Time-based (e.g., quarterly sales after each open trading window).
Price-based (limit orders or stair-step triggers).
Percentage-based (sell X% of each vest).
Hybrid (baseline time-based + price guardrails for oversized positions).
Step 4: Set constraints/guardrails. Define a minimum hold amount, max shares per period, and a target diversification band for company stock.
Step 5: Align with tax strategy. Coordinate withholding gaps, estimated payments, and tax loss harvesting opportunities; draft cashflow rules to avoid forced sales during blackout periods.
Step 6: Document clear, executable instructions. Your broker and company compliance need unambiguous formulae for amount, price, and timing, plus plan adoption date and cooling-off period references.
Step 7: Coordinate approvals. Preclear with legal/compliance and ensure your plan meets the SEC’s amended requirements (cooling-off, certification for officers, limits on overlapping/single-trade plans).
Step 8: Establish monitoring and review cadence. Set periodic reviews (e.g., annually) to adjust for new grants, changing financial goals, or insider trading laws—without reactionary edits that jeopardize the affirmative defense.
Time-Based Rules: Selling a fixed number/percentage monthly or quarterly reduces timing risk, smooths trading and sales across market cycles, and helps insiders maintain discipline. Good fit for predictable liquidity and diversification.
Price-based rules: Use limit orders or price triggers to avoid selling below defined thresholds. Keep logic simple—a cascade of “if/then” conditions can be hard to administer and may increase execution risk.
Percentage of vesting rules: Sell Y% at each vest and keep X% to cap concentration risk while retaining upside.
Target allocation rules: Keep company shares within a defined range (e.g., ≤10–20% of portfolio), rebalancing via planned trading windows.
Hybrid approaches: Combine a baseline time-based plan with price guardrails for large positions or special cash needs. The tradeoff is simplicity vs. precision: predictable diversification and compliance generally beat hyper-optimized, complex rules.
Map RSU income into your annual tax planning. If default withholding (22%/37%) doesn’t match your bracket, plan estimated payments or increase sell-to-cover to avoid underpayment penalties. Consider charitable planning (donating appreciated company stock where permitted) to offset concentrated gains. Coordinate with your CPA on cost basis, holding periods, loss harvesting, and interstate tax issues if you moved during vesting.
For Idaho residents, remember the state’s 5.3% flat income tax for 2025 forward; incorporate state withholding/estimates as part of RSU-related cashflow modeling.
Define where proceeds go—in advance. Typical destinations: cash reserves, near-term goal funding, debt payoff, taxable investing, or retirement accounts (subject to plan rules and trading calendars). Build a reinvestment policy to avoid cash drag, and manage risk intentionally (sector overlap, correlation to employment). Align liquidity design with broader milestones: home purchase, tuition, retirement timeline, or planned sabbatical.
Respect company policy realities—blackouts, preclearance, and special restrictions.
Ensure brokerage setup can administer formula-based orders.
Keep documentation hygiene: plan terms, adoption date, amendments, approvals, trade confirmations.
Handle changes at scheduled review windows (not reactively), consistent with SEC guidance on plan modification and cooling-off periods.
Building rules so complex they’re impossible to follow or administer.
Ignoring withholding/estimated tax needs, causing cash crunches.
Overlooking existing holdings (ESPP, options, prior RSU accumulation).
Setting a plan that conflicts with real-world liquidity needs.
Letting company stock exposure drift because reinvestment decisions weren’t defined.
Failing to coordinate with compliance/counsel when required.
Executive with frequent blackout periods. A time-based plan selling quarterly after vest reduces decision fatigue and ensures regular diversification during blackout periods.
High-income employee with large vest spikes. Pair a percentage of vesting sale with preplanned estimated tax payments; consider sell-to-cover to match withholding to your bracket.
Newly public company employee. After lockup expiration, a hybrid plan can blend baseline sales for liquidity with price guardrails to preserve upside while maintaining compliance.
Concentrated holder balancing risk. Use target allocation rules to cap company exposure (e.g., ≤15% of assets) and funnel proceeds to a diversified portfolio aligned to retirement goals.
Not always. But if you’re an insider with limited trading windows or frequent MNPI exposure, a plan provides structure and an affirmative defense when designed and timed properly.
Once adopted in an open trading window and after the cooling-off period, trades can occur in blackout periods per the plan—still subject to company policies and pre-clearance procedures.
Yes—if your plan’s formula specifies amount, price, and timing (or a clear algorithm) and is established in good faith without MNPI.
Time-based emphasizes consistency and diversification; price-based emphasizes pricing but adds complexity. Many insiders choose hybrid rules.
Changes that affect the amount, price, or timing generally restart the cooling-off clock and must meet amended 10b51 conditions. Avoid serial cancellations that could undermine good faith.
Expect ordinary income at vesting and capital gains at sale; confirm whether default withholding covers your actual liability and plan for estimated payments if needed.
Plans add discipline; some flexibility exists (e.g., termination during open trading windows), but changes must respect company and SEC requirements. Have cash reserves so emergencies don’t force plan changes.
All of the above. Coordinate legal/compliance for insider trading laws, CPA for tax planning, wealth advisor for investment integration, and brokerage for execution.
We translate your financial goals—liquidity, diversification, tax planning, and retirement planning—into clear trading plans you can actually live with. We coordinate the moving parts across your vesting calendar, company policies, and portfolio allocation, then build an ongoing review process so your plan evolves as your compensation, market, and insider trading policies change. We also incorporate current SEC guardrails (cooling-off, certifications, limits on overlapping plans) and best practices highlighted by featured sources (e.g., Morgan Stanley at Work).
If your RSUs, stock options, and company shares are driving too much risk or decision fatigue, let’s build a plan that reinforces diversification, supports compliance, and fits your real-world cash flow and tax planning. Schedule a conversation, and we’ll align your trading strategy with the rest of your wealth management plan—coordinating with your CPA, broker, and company counsel so you can sell shares with confidence. Connect with us today.
Sources:
https://www.morganstanley.com/atwork/employees/learning-center/articles/demystifying-10b5-1-plans
https://www.schwab.com/learn/story/understanding-rule-10b5-1-plans
https://tax.idaho.gov/taxes/income-tax/individual-income/individual-income-tax-rate-schedule/
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