Restricted Stock Units (RSUs) are a common form of equity compensation. They’re generally simpler than stock options but still require careful planning around taxes, timing, and risk.
1. How They Work
RSUs are a promise to grant you company shares once certain conditions, like a vesting schedule, are met. You automatically receive the shares or their cash value when they vest.
2. Taxes
When RSUs vest, their value is taxed as ordinary income. Any future gains or losses after selling are taxed as capital gains. Planning ahead is important, since taxes are due even if you don’t sell the shares immediately.
3. Selling vs. Holding
After vesting, you can sell to cover taxes and reduce risk, or hold for potential long-term growth. Your choice should balance financial goals and comfort with risk.
4. Risk and Diversification
RSUs can concentrate a lot of wealth in one company. Diversifying your investments helps manage risk while still benefiting from your equity compensation.
5. Financial Planning
RSUs can affect taxes, investments, charitable giving, and estate planning. Coordinating them with your broader financial plan can help maximize benefits.
Bottom Line
RSUs can be valuable, but thoughtful planning is essential. Working with a financial or tax professional can help you navigate taxes, timing, and risk to make the most of your equity compensation.
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