The Income Stacking Problem
The Stacking Problem
Here's where it gets expensive. The executives I work with in Morris County and throughout northern New Jersey are typically managing several income events simultaneously — a base salary, an annual bonus, RSU vesting, and in many cases either a non-qualified stock option exercise or a deferred compensation payout in the same calendar year. Each of those events is taxable as ordinary income. Stack enough of them in a single year and you've created a tax bill that your withholding was never designed to cover.
The standard withholding on RSU vesting is 22% federal. That number is set by the IRS as the supplemental wage withholding rate. For most executives reading this, your actual marginal rate is 10 to 13 points higher than that. The difference doesn't disappear. It shows up as a balance due in April, often with a penalty attached for underpayment.
Most people experience this once and assume it was bad luck. It wasn't. It was a coordination problem. And it's one of the most preventable issues in executive compensation planning.
What Experience Has Taught Me
After nearly two decades of working with executives on these decisions, a few things have become clear.
First, the executives who get hurt the most are not the ones who made bad investments. They're the ones who made no decision at all. RSUs vested, options sat unexercised, bonuses landed, and nobody looked at how it all added up until the CPA called in March with bad news.
Second, the tax code actually provides real tools for managing this. Timing option exercises across tax years, adjusting deferred compensation elections before deadlines, running estimated payments mid-year, loss harvesting in taxable accounts to offset vesting income — none of these are aggressive strategies. They're basic coordination that most executives never receive because their advisor is either not focused on this specifically or not looking at the full picture.
Third, and most importantly, the window to act is almost always earlier than people think. Deferred compensation elections have to be made before the year begins. Option exercises take time to model properly. A mid-year tax projection done in June is infinitely more useful than one done in December when the decisions are already locked in.
The Decision That Actually Matters
The real decision with RSUs isn't whether to keep the shares or sell them at vesting. That's a concentration risk conversation we'll cover later in this series. The real decision is what else is happening in your financial life that year, and whether the timing of other income events can be managed around it.
The executives who avoid the surprise bill aren't necessarily earning less or paying more in taxes over time. They're simply making decisions with the full picture in front of them rather than one piece at a time.
What to Do Right Now
Today is April 15th — tax day. If you just wrote a check to the IRS that surprised you, or if you're sitting on RSUs vesting later this year with no clear plan for how they fit into your broader tax picture, this is the right moment to take that seriously.
Look at every income event scheduled for this calendar year. RSU vesting dates, any options you're considering exercising, your expected bonus, any deferred comp distributions. Get a rough sense of where your total taxable income lands. If it's materially higher than last year, your withholding is almost certainly short. A mid-year estimated tax payment or a withholding adjustment can fix that before it becomes a problem.
If you're not sure how to run that analysis, or you want someone to look at the full picture across your compensation, investments, and tax situation, that is exactly the work I do. I hold the CFP®, CIMA®, and CPWA® designations, with the latter two earned through the Yale School of Management. I work exclusively with a small number of clients, which means when you work with me, you have my full attention.
I'm based in Chester, NJ and serve executives at pharma and life sciences companies throughout Morris County, Somerset County, and the broader northern New Jersey corridor. If your tax bill this year felt avoidable, it probably was. Reach out directly and let's talk about what a coordinated plan looks like for your specific situation.
Bill Clinton, CFP®, CIMA®, CPWA® Riverstone Wealth Planners Chester, NJ 908-888-6906 Bill.Clinton@LPL.com
Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.
