Where to Invest RSU Proceeds After Selling Company Stock (a Walkthrough from Edward Jones Investments)

Which IRS rules decide whether proceeds go in the 401(k) or the taxable account?

Four IRS rules decide it: shares held more than 1 year are taxed at long-term capital gains rates, 401(k) trades create no taxable gain, 401(k) withdrawals are ordinary income, and the 3.8% net investment income tax hits taxable interest and gains above $200,000 of MAGI for single filers.

Glenn faced exactly this after selling. Shares held 1 year or less are taxed as ordinary income, so the holding period on each lot matters. Buying and selling inside a 401(k) creates no taxable gain, which makes it the one place he can change sector exposure for free. Withdrawals from the 401(k) are taxed as ordinary income, and before age 59½ they usually carry a 10% additional tax. The exception is leaving the employer during the calendar year you turn 55 or later, and it applies only to that employer's plan.

The wash sale rule disallows a loss if you buy substantially identical shares within 30 days on either side of the sale, and ESPP purchases and RSU vests count as purchases. The 3.8% tax threshold isn't indexed, so a high earner pays it on taxable bond interest every year they keep working. Glenn decided to treat taxable interest as the expensive kind of income and keep it out of his taxable account where he could.

Add up the tech hiding in your index funds

Glenn's index funds were quietly rebuying his employer's sector, so he ran a 3-step test, and you can too. With illustrative numbers that aren't his: first, take the company stock you still hold, say $300,000. Second, multiply each fund's balance by its tech sector share from the fund's fact sheet, so 30% of a $700,000 S&P 500 fund is $210,000. Third, add the two and divide by total investable assets: $510,000 of $1 million is 51%. Use the fund's current sector sheet, because the share moves over time.

Put the safe money in the 401(k) before age 60

"I just sold half my stock, so where does the $380,000 go?" Glenn asked that at age 57 (hypothetical, round numbers). He sold $450,000 of stock with a $100,000 basis. At an assumed 20% federal tax on the $350,000 gain, he pays $70,000 and keeps $380,000.

Before Edward Jones Investments picks any fund, it adds up the first 3 years of withdrawals: 3 × $120,000 = $360,000. That sum, not a questionnaire score, decides how much must stay out of stocks. Held as Treasuries in taxable at an assumed 4%, $360,000 earns $14,400 of interest annually. At an assumed 35% combined rate while he still draws a salary, that's $5,040 a year, or $15,120 over 3 years.

Because Glenn leaves at age 60, past 59½, he moves $360,000 of his 401(k) into its bond fund at no tax and buys a broad index fund with the $380,000. His total stock-to-bond mix stays the same. Only the account that holds each part changes, and the bond interest is taxed later, at withdrawal. A calculator on this site runs the same arithmetic with your own rates.

The IRS rule behind option B is the 59½ line: past it, 401(k) withdrawals carry no 10% additional tax. The table compares three ways to hold the safe money.

Option B wins for Glenn because he leaves after 59½, so the 401(k) is penalty-free when he needs it. The timeline below shows what each age changes. The 59½ row is what makes option B work. The age 63 row matters because Medicare looks back two years: income at 63 sets his premiums at 65. That's why the remaining $450,000 of stock gets sold in smaller lots in the low-income years from age 60. No investment is safe from loss, a bond fund included, and Glenn could get back less than he put in.

Three ways to hold the next 3 years of withdrawals

The timeline from age 57 to age 75

Which 401(k) and taxable account moves only push the tax to a later year?

Moving bonds into the 401(k) only defers the tax, but the deferral still pays. Holding bonds in taxable while Glenn earns a high salary costs $5,040 annually at an assumed 35% combined rate. In the 401(k) the interest is still taxed at withdrawal, but after the salary stops, usually at a lower rate.

A careful seller buys an S&P 500 fund in taxable with the proceeds, notices the tech overlap a year later and sells. A 10% rise on $380,000 is a $38,000 gain and about $7,600 in tax at an illustrative 20%. The same fix inside the 401(k) would have cost $0.

A deferred annuity bought with sale proceeds doesn't save tax either. It shifts it: growth is later taxed as ordinary income, not at capital gains rates, and surrender charges limit access.

Waiting to sell the rest of the stock until after retirement is a real saving only if income actually drops. If withdrawals plus gains land in the same bracket, the tax just moves to a later year while the single-stock risk stays. Donating appreciated shares does remove the gain, and our donating appreciated stock page covers it.

What if you leave the job before age 55?

Leaving at age 52 means you can't draw on the 401(k) without the 10% additional tax until age 59½. The safe money for those years has to sit in taxable, or come from a 72(t) schedule, so option A or C replaces option B. That is where Glenn's solution breaks.

If your plan's menu has no bond or stable value fund, or charges high fund costs, the placement trick weakens. Compare the menu's expense ratios before you move $360,000 into it.

People with a year of very low income may pay little or nothing on long-term gains. Retiring before Medicare also matters, because marketplace health premium credits depend on income. For both groups, how much gain to realize in a given year matters more than fund placement. Check the current IRS thresholds and your state's rules.

Send Edward Jones Investments your 401(k) fund menu first

Edward Jones Investments reviews your plan's fund list, your sale confirmations and the first 3 years of withdrawals, then shows which account should hold the safe money. We meet by phone or video call, and the minimum is $500K in investable assets. We explain the fee when we first talk and put it in writing before any work starts. Fill in the request form on this page and attach your 401(k) fund menu.