We're back on the equity compensation train here. I know I've deviated a bit recently with other topics. However, I felt those were important enough to cover. Plus it's important to mix things up every so often. The topic of this episode is what the heck should you do with your RSUs once they vest? Sell, hold, a bit of both? We'll cover some of these items that you need to consider. As a reminder, RSU stands for restricted stock units and may be the simplest form of equity compensation.
You will want to hear this episode if you are interested in...
What is an RSU?
RSU stands for restricted stock units and they may be the simplest form of equity compensation. A restricted stock unit is a right to receive stock after you've satisfied any conditions imposed by the company, the conditions can be working for the company for a certain amount of time, or maybe hitting a sales goal. If you meet the conditions, you get the shares. If not, well, you don't get them. Pretty simple.
The taxation of your RSUs is dependent on what you decide to do with them. Your options are dumping them, keeping them, or something in between. Listen to the episode for more on which tax rules apply to which option.
Let’s talk about options...
Option 1: Dump them. Dump may be a harsh word, but it's an easy option to the question of what to do with your restricted stock units. You know, it's just simply to sell them as soon as they best are in your control
Option 2: This option is the flip-side of the first. It's holding onto the shares once in your control. There are two reasons I see people choose this option. First, is the employee firmly believes in the long-term performance of their company stock. The next, and more common reason I see people hold, is that they just never elected to sell the shares either due to laziness or forgetfulness.
Option 3: Your final option is figuring out the right balance of the first two approaches, selling some, and holding the rest. This is the approach I use with clients.
For more on each option go check out the episode!
This week’s FLASHBACK: Fireworks Wars
The street I grew up on had lots of kids the same age. We used to hang out a lot. It was around the 4th of July we ended up with some of our most epic adventures, at least for a few years. I don't recall which parent was crazy enough to supply us with fireworks. But I do remember one neighbor who was a physician lighting them with us so it wasn't just a bunch of dumb kids. Fireworks wars needed two basic supplies. Bottle Rockets and Roman Candles.
Now I never had luck with firing bottle rockets at friends in these fireworks wars. I either held the stick too tight or too loose in my fingers. So the stupid thing would either drop and explode or blow up in my hand. Fortunately, these were weak enough not to cause any damage. My brother was pretty lethal with them. He had the right touch. Now, Roman candles, those were more my speed. You just held the tube, lit it, and you had like eight shots of fireballs to launch toward your opponent. These were expensive and we didn't have very many, your aim had to be solid to use them. This was definitely a situation of shooting your eye out, but it's a great memory from when I was a kid.
Resources & People Mentioned
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.