Today is part two of our series on restricted stock. Last week we talked about restricted stock units and this week we are talking restricted stock. You may hear it referred to as restricted stock awards, restricted stock grants, or stock grants. However, for this episode, we will simply stick with restricted stock. Now, you may be wondering what the difference is and why does it matter? Well, that is precisely what you will take away from today’s show. You’ll also learn about some of the benefits that come along with the RSA that you won’t get with the RSU so be sure to check out episode 19 of the Equity Compensation Guidebook!
You will want to hear this episode if you are interested in...
The key difference between restricted stock and restricted stock units [0:50]
Advantage of restricted stock versus restricted stock units [2:34]
What happens once you’re fully vested? [3:53]
What does the 83b election do and what’s the advantage? [5:36]
More ability to plan for taxes [7:40]
This week’s FLASHBACK [8:51]
Restricted stock, yours but also not really yours?
Restricted stock provides the same benefit as a restricted stock unit but you get the shares immediately with the restricted stock. However, the shares are kept in escrow. What exactly does that mean? Well, the shares sit in holding and although they are yours, they are kinda not yours. At least they aren’t until you meet the requirements to get them out of escrow. The vesting conditions to get them out of escrow are often something time or performance-related.
Two things that give restricted stock and edge over RSU’s
There are two benefits that come with restricted stock that you don’t get with RSUs. The first is you get dividends and have shareholder rights. So if your company stock has regular dividends, you will receive it albeit as regular income reported on your W2 instead of capital gains since Uncle Sam doesn’t recognize you as the owner of the stock yet. The second is the ability to do an 83b election. Now the 83b is kind of a big deal but for more on that, you’ll have to check out the episode. I can’t give you everything here or you’d have no reason to listen!
This week’s FLASHBACK: One word...JARTS
Yep, you read that right. Jarts, as in the big metal lawn darts. All I'm going to say is I understand why you can't find these flying darts of death anymore, or at least not the ones like they made when I was a kid. It's a miracle none of my group of neighborhood friends ended up in the ER considering the way we played with the set we had. And I'm sure we were not alone. We did things like throwing them directly at one another to see if you could catch them out of midair and throwing them as high into the air trying to get them to land in the circle target. We are lucky to have survived to have the stories to tell.
Lawn darts were actually deadly, so much so they were banned in the USA in 1988 by the United States Consumer Product Safety Commission. In 1997 the ban was reissued and Americans were encouraged to destroy the game. It’s actually illegal to sell them.
I’m Dan Johnson, CFP®, founder of Forward Thinking Wealth Management. I run a flat-fee financial planning and investment management firm located in beautiful Akron, OH. Although I am in Akron, OH, I work with clients regardless of location. I cater to owners of equity compensation positions who are looking to organize their financial lives, keep more of what they make, and do the things they want in retirement and even now.