Restricted Stock Unit (RSUs) & Your Financial Plan

If you are with a company where you’ve received or will be receiving RSUs, first and foremost — congratulations! With a little bit of luck and a lot of hard work, you’ve landed yourself in an exciting position to improve your financial well being. Below are quick tips to help you avoid potential mistakes that could cost you millions.

Let’s quickly walk through how Restricted Stock Units (RSUs) work at a high level:

  • Grant Date: The date you were awarded RSUs
  • Vesting Schedule: The rate and timing that your RSUs will be vested
  • Vested: When shares vest, you become the owner of the equivalent of units that vested.
  • How Taxes Work: You are taxed at the time your RSUs are vested at ordinary income tax rates, please see new 2018 rates here.  If you hold onto the shares, future growth or loss will be treated as Capital Gains/Losses
  • Termination: At termination, you lose unvested RSUs unless your vesting schedule is accelerated at termination

Five Steps to Help You Grow Your Nest Egg:

Get a Comprehensive Financial Plan

Academic research by The National Endowment for Financial Education shows that up to 70% of people who come into sudden wealth deplete those funds within a couple years. Before you take any action with your RSUs, consider working with a fiduciary financial advisor to help you put together a financial plan. With a plan in place, you can make clear decisions that align with your overall goals, and as a result, protect and grow your wealth.

Don’t Play Yourself

Once you receive your shares, it’s important to diversify your money. You may be tempted to keep your shares in tact in hopes that they increase like the Amazon, Google, and Apple unicorns of the world. However, it is possible marquee companies can become insolvent (e.g. Enron, Radio Shack, and Lehman Brothers). It’s always risky to bet your entire nest egg on one company’s stock.

New Shares vs. Old Shares

Sell new shares that vest as soon as possible. Your shares are taxed at vesting, so if you are able to sell them before any major price movements, the tax consequences will be much less significant.

The markets have been pretty up, down and across the board this year in particular, so it’s likely that your accumulated employer stock has gone up in value and would cause gains to be taxable at capital gains rates. With your old shares, depending on your threshold for paying taxes, you may be able to sell all or you may want to devise a systematic plan to gradually reduce your exposure to your employer’s stock.

Diversify Your Holdings with Evidence Based Strategies

So you’ve sold your  shares, now what? Try not to get caught up in “get rich quick” investments (cryptocurrencies, options trading, commercial real estate, commodities, etc.). Keep it simple. Look to diversify with an evidence based investing strategy that utilizes low cost Exchange Traded Funds (ETF’s) or Indexed Mutual Funds. This approach is backed by Nobel Prize winning research and takes the guesswork out of investing. Globally diversified portfolios have been academically proven to lower costs and risk.

Hire A Team Of Professionals

Don’t go at it alone. There is tremendous value in outsourcing the day-to-day investment and tax management of your assets. At minimum, look to hire a fiduciary financial advisor and a CPA as soon as possible. These individuals will work in your best interest and provide actionable steps to help you grow and protect your wealth.

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