In today's episode, we're going to cover a topic that assumes you are newly receiving equity compensation awards. Specifically, restricted stock units (RSUs). First off, congratulations! Seriously. Equity compensation is highly valued by participants who receive it and hopefully, it will help you build wealth for your future.
There are some key things to do now that you will be receiving RSUs. I will be touching on a variety of things for you to ask and do. The list will not be comprehensive and everything may not apply to you. However, these are some of the most common items I see with my equity compensation clients. Also, I'll be going through them at a high level. Don't worry. I'll be sure to cover them in greater detail in future episodes. Heck, some of them have already been covered. If you know nothing about restricted stock units check out episode 18. This breaks down what a restricted stock unit is.
You will want to hear this episode if you are interested in...
Questions to ask
First, be sure to ask for a copy of the document explaining all the rules and ins and outs of your restricted stock units and put it in a safe place. Next. Be sure to get clarity on how vesting works for your RSUs. This is when the RSUs are now fully under your control. It's also when taxes can come into play. Speaking of taxes, RSUs have taxation issues with them and you will want to know how your employer handles these.
Other important questions to ask are what happens to your RSUs if the company is acquired and where exactly your RSUs will be held (this usually ends up at a large brokerage). Now, this is a question you may not want to ask, but you need to. What happens to any unvested restricted stock units if you die. The final question you should ask is if your employer has a dedicated resource to help you learn more about equity compensation. Even if they do you should do some research on your own, but hey, maybe that’s how you ended up here!
Now that your RSUs are fully vested
Let's move on to the stage where your previously awarded RSUs become fully vested. This is where the rubber meets the road. Because taxes are so important, we're going to start here. As I’ve said, maybe too many times, it isn't what you make, it's what you keep. The point here is unlike the market, we know what is happening with taxes and can therefore make smart tax-smart decisions. With those tax-smart decisions, we can make sure we're keeping as much as possible in our pockets and our accounts. If you want more details on taxes on equity compensation I cover some of that in episode 15. You’ll also need to decide how many shares—if any—you want to hold onto and I covered this in great detail in episode 41. But it boils down to this: keep them all, sell them all, or a combination of both.
This week’s FLASHBACK: That time I was fired 3 times in one day
I had an internship in grad school and one weekend we had a work event outside, which meant casual clothes. I wore a ball cap that happened to be for the Cleveland Indians. My boss stopped by, saw my hat, and asked if I was a fan. I told him I was, I knew this would bother him because he was from the Cincinnati area. He told me I was fired. Then he asked if I liked the Browns, again, wrong answer, he was a Bengals fan. He fired me. He told me to keep working though.
After the event was done, he and another person talked about going to the local Skyline Chili—a regional fast food place out of the Cincinnati area. Their menu is just taking some sort of a chili concoction and putting it on top of noodles or things like hotdogs.—I must've had a look of disapproval because my boss asked me if I like Skyline. I told him I didn't, and I was fired again! All I know is I showed up to work on Monday and fortunately, my boss did not make me eat Skyline Chili. Had I refused, I really may have been fired.
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.