RSU 'Sell on Vest' Strategy Gains Traction
For Canadian software engineers, the consensus strategy for managing RSUs is to sell them immediately upon vesting to mitigate risk from stock volatility. The proceeds can then be used to cover the income tax liability—as RSUs are taxed as employment income when they vest—and the remainder can be reinvested into diversified, tax-advantaged accounts like a TFSA or RRSP.
The value of vested RSUs is added to your annual income, which for a high-earning software engineer in Ontario can push their marginal tax rate to over 53%. This means more than half the value of the vested shares can be immediately owed in taxes. A typical vesting schedule in the tech industry is structured over four years with a one-year "cliff." This means no shares are received for the first year of employment, after which 25% of the grant vests, with the remainder vesting monthly or quarterly over the subsequent three years. Holding vested shares creates a concentrated position in a single stock, which is subject to market volatility. For instance, major tech stocks like Google and Amazon have recently experienced significant single-day declines, illustrating the risk of having a large portion of one's net worth tied to one company's performance. Financial advisors widely advocate for selling RSUs as they vest to systematically convert a concentrated and volatile asset into cash. This cash can then be used to invest in diversified, low-cost Exchange-Traded Funds (ETFs) that spread risk across hundreds or thousands of companies, reducing the impact of a single stock's poor performance. For 2026, the proceeds from selling RSUs can be moved into tax-advantaged accounts. The annual Tax-Free Savings Account (TFSA) contribution limit is $7,000, bringing the cumulative total to $109,000 for those eligible since 2009. The Registered Retirement Savings Plan (RRSP) contribution limit for 2026 is $33,810, though your personal limit is 18% of your 2025 earned income up to that maximum. Contributing to an RRSP provides a tax deduction that can help offset the income tax paid on the vested RSUs. While employers often automatically sell a portion of vesting shares to cover a baseline tax amount (a "sell to cover" transaction), this withholding may not be sufficient to cover the employee's actual marginal tax rate, potentially resulting in a tax bill at year-end.
