Many tech employees are granted Restricted Stock Units (RSUs) as part of their compensation package. This is certainly an attractive benefit, but managing these stocks based on the vesting schedule, potential tax liabilities, and your long-term goals can get a bit tricky—it is challenging to know how to best maximize this opportunity.
What to consider for your RSU vesting strategy
1. Consider the tax liabilities of your RSUs.
Make sure you factor in potential tax liabilities into your financial planning as a tech professional. Restricted stock is included in gross income for tax purposes and is recognized on the date when the stocks vest. This means you don’t have any immediate tax liability, but you will owe taxes when your RSU vests and you receive your payout of stock shares. The tax liability will be based on the stock’s fair market value, so be sure to take that into consideration as you plan for your payout. Some companies will automatically sell a number of shares on your behalf to cover a portion of your tax liability, but are they withholding enough to meet your Federal and State tax brackets?
The timing in which you hold and sell the company stock once vested should also be considered, as maintaining your position in the stock after the vest date could mean capital gains in the future.
2. Research concentration vs. diversification
When you are assessing your level of concentration versus diversification, it is prudent to research the health of your company’s stock. When considering concentration, it is important to remember that both your paycheck and your RSUs are tied to the same company. If instead of RSUs, your company paid you a cash bonus, would you feel confident in buying shares of your company stock in your own brokerage account? If the answer to that is no, then selling and diversifying might be your next step.
Implementing the correct strategy for your RSUs can be complicated, but if you have the opportunity to supplement your compensation with this benefit, knowing what you should pay attention to will go a long way. Want help simplifying this complex investment process? We’re happy to help.
Are you a tech professional? Take our quiz to find out if now is the time to start working with a financial advisor.