Restricted Stock Units

Restricted stock units (RSUs) are a form of equity compensation that many companies offer to their employees as a way to incentivize them to stay with the company and share in its success. RSUs can be a valuable asset, but they also come with their own set of financial planning considerations.

One of the key things to keep in mind when dealing with RSUs is that they are typically subject to vesting schedules, meaning that employees will not have access to the full value of the RSUs immediately. Instead, they will receive a certain portion of the units at specific intervals over a set period of time. This can create a potential financial windfall, but it also means that employees need to plan for the tax implications of receiving these units.

One strategy for managing RSUs is to diversify your investments. Since RSUs are tied to the performance of a single company, holding onto them can create a lack of diversification in your investment portfolio. By selling off some of your RSUs as they vest and investing the proceeds in a more diversified portfolio, you can reduce risk and potentially improve your overall investment returns.

Another strategy is to consider the timing of when you sell your RSUs. By selling your RSUs strategically, you may be able to minimize the tax impact and maximize your overall financial gains. For example, if you have RSUs that are set to vest in a year where your income will be lower than usual, you may want to wait until that year to sell them in order to take advantage of a lower tax rate.

It's also important to consider how RSUs fit into your overall financial goals. For example, if you are saving for a specific financial milestone, such as buying a home or retiring early, you may want to sell some of your RSUs to help fund those goals. On the other hand, if you have a more long-term investment horizon, you may choose to hold onto your RSUs in order to take advantage of potential future growth.

In conclusion, RSUs can be a valuable asset, but they require careful financial planning to ensure that you are maximizing their value and minimizing any potential risks. By diversifying your investments, strategically timing your sales, and aligning your RSU strategy with your overall financial goals, you can make the most of this form of equity compensation. Consulting with Carriere Financial Planning can also be helpful in developing a plan that is tailored to your specific financial situation and objectives.

About the author:

Paul Carriere CFP® provides fee-only financial planning and investment management services in Colorado Springs, Co. and nationwide. Carriere Financial Planning serves clients as a fiduciary and never earns a commission of any kind. Paul has over 10 years of experience as a financial advisor in Colorado Springs. 

* This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities.