The Complete Guide to RSUs: From Grant to Sale

Understanding the Basics: What are RSUs?

Think of RSUs as a promise from your employer to give you actual shares of company stock at specific future dates. Unlike more complex forms of equity compensation like stock options, RSUs are relatively straightforward: once they vest, you own real shares of company stock.

The key components of RSUs are:

• Grant Date: When your employer promises the shares
• Vesting Schedule: The timeline for when you’ll receive the shares
• Vesting Date: When specific shares become yours
• Fair Market Value: The actual value of the shares when they vest
  
  

For example, let’s say you receive a grant of 1,000 RSUs when your company’s stock is trading at $100. With a typical four-year vesting schedule with a one-year cliff, you might receive:

• 250 shares after year one
• 62.5 shares each quarter for the next three years
  

Unlike other forms of equity compensation, RSUs are elegantly simple: They maintain value as long as your company’s stock price stays above zero.

The Vesting Process: From Promise to Ownership

Understanding your vesting schedule is crucial because it directly impacts both your compensation timeline and tax planning. Most companies use one of these common vesting patterns:

Time-Based Vesting

The most common approach, where shares vest based purely on how long you’ve been at the company. Typical structures include:

• Four-year vesting with a one-year cliff (most common)
• Four-year vesting with quarterly or monthly installments
• Performance-accelerated vesting schedules
  
  

Performance-Based Vesting

Some companies tie RSU vesting to specific performance metrics, such as:

• Company revenue targets
• Stock price milestones
• Individual or team performance goals
  
  

For RSUs, vesting dates aren’t just about ownership; they also trigger a tax event. At each vesting milestone, the value of the shares is considered ordinary income, impacting your overall tax strategy. Use our RSU Tax Estimator to model these scenarios.

Tax Implications: A Critical Consideration

One of the most important aspects of RSU management is understanding and planning for taxes. Unlike other forms of equity compensation, RSU taxation is relatively straightforward, but the impact can be significant.

When RSUs Vest

• The full value of your vested shares is taxed as ordinary income
• Your employer will typically withhold:
  • Federal income tax
  • State income tax (where applicable)
  • Social Security and Medicare taxes
    
    

Withholding Methods

Companies typically handle tax withholding in one of two ways:

1. Sell-to-Cover: Automatically selling enough shares to cover tax obligations
2. Same-Day Sale: Selling all shares immediately upon vesting
   
   

Additional Tax Considerations

If you hold shares after vesting:

• Any gain or loss from the vesting price is treated as capital gains/losses
• Holding for over one year qualifies for long-term capital gains rates
• Consider the impact on your tax bracket and other tax obligations
  
  

▶ Calculate Your RSU Taxes  

Practical RSU Management Strategies

Managing your RSUs effectively requires balancing several factors:

Immediate Questions to Consider

1. How much of your compensation is in RSUs?
2. What’s your company’s stock performance history?
3. How diversified is your overall investment portfolio?
4. What are your immediate and long-term financial goals?
   
   

Common Management Approaches

Strategy 1: The Automatic Sale Approach

• Sell shares immediately upon vesting
• Benefits:
  • Immediate diversification
  • Predictable tax management
  • Reduced exposure to single-stock risk
• Best for: Those prioritizing risk management or needing cash flow
  
  

Strategy 2: The Hold and Evaluate Approach

• Hold shares after vesting, evaluating periodically
• Benefits:
  • Potential upside from company growth
  • Tax optimization opportunities
  • Maintained ownership in company success
• Best for: Those bullish on company prospects with stable finances
  
  

Strategy 3: The Hybrid Strategy

• Sell a predetermined percentage upon vesting
• Hold remaining shares based on specific criteria
• Benefits:
  • Balanced risk management
  • Participation in upside
  • Systematic decision-making
• Best for: Most RSU recipients seeking balance
  
  

Common Pitfalls to Avoid

Pitfall 1: Emotional Decision Making

Don’t let company loyalty or fear of missing out drive you to maintain too large a position in company stock. Make decisions based on your overall financial strategy.

Pitfall 2: Ignoring Concentration Risk

Even if you’re confident in your company’s prospects, having too much of your wealth tied to a single stock can be risky. Consider the broader market and diversification principles.

Pitfall 3: Forgetting About Vesting Schedules

Not incorporating vesting schedules into your financial planning can lead to missed opportunities or cash flow challenges.

Pitfall 4: Poor Tax Planning

Failing to plan for tax implications can lead to unexpected obligations. Understand your tax situation and plan accordingly.

Advanced Considerations

Market Timing and RSUs

While it’s generally unwise to try to time the market, you might consider:

• Setting target prices for selling vested shares
• Implementing a systematic selling schedule
• Using dollar-cost averaging for diversification
  
  

Portfolio Integration

Consider your RSUs as part of your larger investment strategy:

• Factor them into your overall asset allocation
• Consider correlation with other investments
• Plan for regular rebalancing
  
  

Career Implications

Remember that RSUs tie you to both your company’s employment and investment prospects:

• Consider the impact of leaving before full vesting
• Evaluate new job offers holistically, including RSU components
• Understand accelerated vesting provisions in case of acquisition
  
  

Getting Started: Your RSU Action Plan

1. Review Your Grant Documentation
   • Understand your vesting schedule
   • Note any special conditions or requirements
   • Calculate your projected vesting dates
2. Develop Your Tax Strategy
   • Determine withholding requirements
   • Plan for additional tax payments if needed
   • Consider tax-loss harvesting opportunities
3. Create Your Management Strategy
   • Decide on your selling approach
   • Set up automatic sales if desired
   • Document your decision criteria
4. Implement and Monitor
   • Track vesting dates and values
   • Review and adjust strategy periodically
   • Keep records for tax purposes
     
     
     

Additional Resources

• Want to check your own RSU vesting scenario? Use our RSU Tax Estimator
• Need a refresher on equity compensation basics? Visit our Equity Essentials Guide
• Explore strategies for optimizing employee stock purchase plans, including look-back provisions, in our ESPP Guide
• Understand how stock options work and how to make the most of your equity package in our Stock Options Guide
• Stay ahead of tax considerations with actionable tips in our Tax Planning Guides
• Looking for a quick answer to a specific question? Try our Equity FAQ