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What to do with your Restricted Stock Units (RSUs) of a public company?

A growing tendency of giving RSUs among employers makes more and more people face a decision in terms of what to do with their RSUs. This week I will share with you the framework I use for my clients who have RSUs in a public company. 


Step 1: Understand your RSUs.

First of all, you need to understand some basic concepts like what an RSU is and how it works. More importantly, you need to figure out how your RSUs work specifically. My prior blog post here can help you find out what you need to know about your RSUs. You can read it here.

Step 2: Estimate your tax liability and figure out how much is actually yours.

RSUs are taxed upon delivery of the stocks, which is usually upon vesting. In other words, you owe taxes even you haven't sold the shares.

 For illustration purposes, let's separate people who have RSUs of a public company into two groups. 

Group 1: People who are not subject to any trading restrictions like a lock-up period, a blackout period, or a trading window, etc. The vesting schedule doesn't matter here. As long as you are free to trade the stock once it becomes fully vested, you belong to this group.

Group 2: People who are subject to some trading restrictions. In other words, if you cannot trade the stock right after it becomes vested, you belong to this group.

To make it simple, let's assume all RSUs are taxed upon vesting.

For people in Group 1, follow the steps below.

  1. Estimate the gross value of your RSUs upon vesting;

  2. Estimate your total tax liability, including Social Security tax, Medicare tax, federal and state income tax based on the number from step 1;

  3. Calculate how much is yours by netting the gross amount from step 1 and the tax number from step 2;

  4. Estimate how much taxes your employer would withhold based on the number you get from step 1;

  5. By netting the number from step 2 and the amount from step 4, you can calculate how much additional cash you need to prepare or the equivalent amount of shares you need to sell to cover the tax due;

  6. Figure out if you need to pay estimated taxes for the current year and how much.

For people in Group 2, follow a similar process with some additional steps and tweak the highlighted below. 

  1. Estimate the gross value of your RSUs upon vesting.

  2. Estimate your total tax liability, including Social Security tax, Medicare tax, federal and state income tax based on the number from step 1.

  3. Estimate the gross value of your vested RSUs once they become tradable.

  4. Calculate how much is yours by netting the gross amount from step 3 and the tax number from step 2.

  5. Estimate how much taxes your employer would withhold based on the number you get from step 3.

  6. By netting the number from step 2 and the amount from step 5, you can calculate how much additional cash you need to prepare or the equivalent number of shares you need to sell to cover the tax due. Make sure you take any embedded capital gains or losses into consideration if you plan to sell the shares to cover it.

  7. Figure out if you need to pay estimated taxes for the current year and how much.

Now you should not only have an idea of how much extra taxes you will owe but also have a plan in terms of how to pay it. More importantly, you know approximately how much you will get after taxes. 


Step 3: Know your options.

Now let's take a look at the options you have or the things you could do with your RSUs.

  1. Keep it.

  2. Sell and then spend it.

  3. Sell and then invest it in something else.

  4. Give it to someone else directly.

  5. Sell and then give it to someone.

  6. A combination of anything above.


Step 4: Make decisions based on your needs and goals.

As always, as a financial planner, I need to know everything about you to give you specific recommendations. But here are some questions I recommend that you ask yourself to help you guide through the decision process. 

  1. Without counting your RSUs, do you have all the money you need to meet all your financial goals? If so, you can do anything. Some options may be better than others, but nothing hurts.

  2. If you cash out all the stocks from your RSUs, do you have enough to meet all your financial goals? If so, consider selling everything and investing the proceeds conservatively. "If you've won the game, stop playing." by William J. Bernstein.

  3. Do you have enough savings or cash flow to cover extra taxes calculated in step 2 above? If not, consider selling enough and saving the proceeds in a high-yield savings account.

  4. Do you have enough emergency funds to cover your living expenses for at least 3-6 months? If not, consider selling enough and saving the proceeds in a high-yield savings account.

  5. Do you have any debts with a high-interest rate like a credit card debt? If yes, consider selling enough to pay it off.

  6. Do you plan to use the money to fund any short-term (less than five years) goals like a down payment? If so, consider selling enough and invest it more conservatively.

  7. Do you plan to give some of the money to others, including charities this year? If so, consider giving the shares directly if you are in Group 2 and have some embedded capital gains in your stocks. You can avoid paying tax on those capital gains if done correctly. If you are in Group 2 but have embedded loss in your stocks instead, consider selling it first and giving cash. You can benefit from taking some capital loss deductions this year or carrying it forward to future years.

  8. Do you have a plan to donate some of the money to charities gradually in future years? If so, consider giving the lump sum to a Donor-Advised Fund to optimize your overall tax deductions if applicable. The strategy mentioned in question 5 also applies here.

  9. Do you have over 10% of your investable assets invested in your employer's stock? If so, consider selling some or all of it and invest in a more diversified way (check out our investment philosophy here if you are interested) or more conservatively based on your life stage and goals. If you are in Group 2 and have huge embedded gains in these stocks, it may make sense to sell it gradually to optimize the tax consequences.

  10. Do you believe your employer is one of the best companies to invest in, you would like to invest your earnings in addition to your career in it, and now is the best time to do so? If so, consider keeping some or all of it based on your confidence in the company. Setting up rules in terms of when to buy and when to sell ahead of time may also help.

What is the most common thing that people do with their RSUs? Most people know the answer, which is doing nothing. It makes sense since it's the easiest option. However, by doing nothing, you are basically saying yes to question 10 above. From my experience, I rarely get "yes" to that question. For people in Group 1, you can basically treat your RSUs as cash bonuses since the tax impact of selling all your shares during the first trading after it becomes vested should be minimal. For clients who cannot think it through, I even recommend liquidating everything right away and then making a decision. I have never met anyone who did that and then decided to invest the money back into their employer's stock again. The same thought process also applies to people in Group 2 without embedded gains in your stocks as capital losses would make your tax situation even better than cash bonuses. For people in Group 2 with embedded gains in your stocks, your RSUs are not exactly like cash bonuses since you have to consider the negative tax consequences of selling the shares. However, as I mentioned in question 9 above, unless the tax impact is significant, don't let the tax tail wag the investment dog.


As you can tell from everything mentioned above, making decisions on your RSUs is definitely not easy. It requires tax and investment knowledge to make an informed decision or at least to avoid any unintended consequences. I recommend getting some professional help if you are not comfortable or simply don't have the time or willingness to do it by yourself. 

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