A 61% Position, a $180,000 Basis, and Four Years to Retirement

Concentration, measured three ways.

• Market value: $1.15M ÷ $1.9M of investable assets = 61% in one stock.
• Including unvested RSUs: $1.45M ÷ $2.2M = 66%.
• On an economic basis the number is worse: his salary, his $95,000 pension, his RSUs, and 61% of his liquid net worth all depend on the same balance sheet. A single adverse event - a plant closure, a product recall, an accounting restatement - hits his income, his unvested equity, and his portfolio simultaneously.

Why the tax framing is backwards.

• The certain cost of diversifying is on the gain only: $1.15M − $180,000 = $970,000 of gain. At 20% federal + 5% state + 3.8% NIIT = 28.8%, that is about $279,000 of tax, leaving roughly $871,000 of diversified assets. The tax is bounded at 28.8% of the gain.
• The risk is not bounded the same way. A 50% decline in the stock costs $575,000 - more than twice the tax bill - and it typically arrives at the same moment his job and RSUs are impaired. Idiosyncratic single-stock risk carries no expected-return premium; he is taking uncompensated risk.

Practical constraint: if his role makes him a Section 16 officer or a designated insider, he cannot simply sell on demand - open windows and blackout periods apply, and the RSU vesting schedule creates forced income regardless. That argues for adopting a Rule 10b5-1 plan during an open window, not for waiting.

Tool-by-tool.

1. Staged sale under a 10b5-1 plan (core tool). Certain cost: ~$279,000 of tax on the gain. Available: yes. Sell down over three tax years, using the 20%/23.8% capital-gain rate and the 5% state deduction, and avoid stacking all the gain into one year.
2. Donor-advised fund gift of low-basis shares. Deduct fair market value, permanently avoid the capital gain, 30%-of-AGI limit for appreciated long-term property to a public charity with a five-year carryforward. Efficient if he has genuine charitable intent - and he has some. Fund five to ten years of giving with, say, $150,000 of shares.
3. Charitable remainder unitrust. Sells inside the trust without immediate tax, diversifies, pays him an income stream, and generates a deduction. But it is irrevocable - he gives up the principal. Appropriate only for a slice he would leave to charity anyway and only once his own spending is funded.
4. Exchange fund. Defers the gain, but qualified-purchaser status generally requires roughly $5 million in investments. Marcus has $1.9 million. Not available.
5. Collar or prepaid variable forward. Hedges without a taxable sale, but the cost is a capped upside and there is constructive-sale risk if the collar is too tight. A partial hedge on a modest slice, not a strategy.
6. Hold for the step-up at death. Only works if he can survive the risk. At 61 with 66% exposure, that is a bet the plan cannot afford, and his estate is far below the exemption threshold - the step-up is worth far less to him than the downside.

Recommendation: adopt a 10b5-1 plan now; sell to a ≤15% policy limit over three years; fund a DAF with appreciated shares this year; keep a residual slice for charitable intent and any step-up potential. Accept the 28.8% tax on the gain as the price of eliminating an unbounded risk.

New shape of the balance sheet: roughly $1.5M taxable, $400,000 tax-deferred, no meaningful Roth, plus a taxable RSU stream for four more years.

Location rules, applied:

• Taxable account - broad, low-turnover equity index funds and ETFs. Qualified dividends and long-term gains get favorable rates, there is no forced distribution, and the surviving spouse or heirs get a step-up in basis. This is where you want the appre-ciating asset with the largest embedded gain.
• 401(k) - the entire bond allocation. Interest is ordinary income wherever it is earned, so putting it in the tax-deferred account converts nothing from capital-gain to ordinary treatment. It is the cheapest available shelter.
• Roth (build one) - highest expected return. Roth conversions in the low-income years between retirement at 63 and Social Security are attractive; place the most aggressive sleeve there.
• Do not buy municipal bonds. With $400,000 of 401(k) room still available for bonds, a muni in the taxable account would be paying a tax cost to solve a capacity problem he does not yet have.
• Keep 12 months of spending in T-bills inside the taxable account. This prevents a forced sale of equities in a drawdown and, importantly, prevents a forced sale that would trigger the gain he just spent three years managing.

Coordination point: each RSU vest is ordinary income and creates a fresh batch of shares. Sell at vest (or instruct net-share settlement) rather than letting the position rebuild - otherwise the diversification program silently unwinds.