More and more companies are paying out compensation in the form of equity as restricted stock or stock options. Today we’re going to focus on RSUs.
What Are Restricted Stock Units? (RSUs)
Restricted stock units, or RSUs, are an award of stock shares, usually given as a form of employee compensation. The recipient must meet certain conditions before the RSUs are transferred to the owner, such as achieving a specific milestone or remaining with the employer for a particular length of time.
RSUs can be a great way to build wealth, and they incentivize you to stay with your employer longer. But let’s discuss how you can get the most of them.
3 Keys to Restricted Stock Units (RSUs)
Start by understanding your vesting schedule. RSUs vest over time, which means you won’t have access to all your shares right away. You should take the time now to figure out your vesting schedule so you can make a proper plan.
Next, here are the tax implications. You are not taxed when you receive your RSUs, however when they vest, they’re taxed as ordinary income. Meaning you could owe a significant amount to Uncle Sam at that time, even if you don’t sell your shares. From that point on, you will pay capital gains tax if you sell them in the future at a price higher than the stock was when it vested. So, you may want to contact a financial professional now so you’re prepared later.
And, you’ll probably want to diversify… While RSUs are a great way to build wealth, they concentrate your investments in one company, so you should consider diversifying to have a more balanced portfolio. There are different strategies that you can take to sell your shares over time. For example, you can sell a lot when your RSUs is a total percentage of your overall portfolio, or if the stock hits different price points.
And that’s where we can help. We help clients manage their RSUs every day, and we can help you too. We invite you to schedule a complimentary consultation with our team of financial advisors below.
Remember, equity compensation like RSUs can be a valuable tool to building wealth, but you want to understand the risks and rewards before making any decisions.