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I have some RSUs that will vest next year. I plan to contribute to an education fund for each of my kids. From what I've read, it sounds like the amount at vesting is considered ordinary income, while any gains/losses between the time of vesting and selling is considered short- or long-term capital gains/losses (based on price sold vs price basis at vesting, and depending on whether the positions were held for less than or more than a year).

First, is all of the above correct?

Second, can I choose to defer the taxes (rather than "sell to cover") until the end of the year when I do my normal income taxes, so that I can take all of the money from the sale and dump it into educations funds?

Finally, am I correct in understanding that if I can not "sell to cover" and defer the taxes until the end of the year, I won't actually have to pay any taxes on the income portion if I invest all of it into an education fund (or traditional IRA, etc)? I would only pay taxes on the short-term capital gains on the difference between the vesting price and the sales price?

thephatp
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You are correct in your understanding of income vs capital gains.

I would check with your benefits department to be sure, but in my experience there's not an option to opt-out of tax deductions from "bonus" income, whether in RSUs or cash.

Another way to deal with the withholding if you plan to put the money from the RSUs in a tax-deferred vehicle is to just reduce withholdings on your normal pay to compensate. So if you have, say, 4 allowances now, you could up that to 8 to reduce your withholdings for the rest of the year. When you file your taxes, the total income and amount withheld is all that matters, so you'll be in the same spot either way.

You can use the IRS Withholding calculator to see how many allowances you need or look at the withholding tables to get as close as you can. Or just leave everything as-is and expect a big refund check next year :)

D Stanley
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  • Unfortunately, I just realized there is no federal tax deduction for contributions to an education fund, so it may not even matter now. :/ I may have to pay that anyway, because I want this money to go towards college. – thephatp Aug 21 '18 at 13:58
  • Depending on your state, you can get a state tax deduction for contributing to a 529, and both grow tax-free, so there still may be some benefit. – D Stanley Aug 21 '18 at 14:01