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If you have received Restricted Stock Units (RSUs) as part of your compensation, you are not alone. Many employers, particularly in technology, finance, and corporate leadership use RSUs to reward employees and tie performance to company success.

But while RSUs can be a powerful financial benefit, they can also be complex. To maximize their value, it is essential to understand how they work, how they are taxed, and how they fit into your long-term Financial Plan.

🔍 What Are RSUs?

Restricted Stock Units (RSUs) are a type of equity compensation. Unlike stock options, which give you the right to purchase shares at a fixed price, RSUs represent a promise to give you company shares in the future, usually when certain conditions are met.

You do not need to buy anything. When RSUs vest, you receive the shares outright, and can typically hold or sell them.

⏳ How RSUs Vest

RSUs are awarded with a vesting schedule, meaning you earn the shares over time. A common schedule might look like this:

• Year 1: 25% of your RSUs vest (often called a “cliff” vest)
• Years 2–4: The remaining 75% vest gradually, perhaps monthly or quarterly

This structure encourages long-term employment, and aligns your interests with the company's performance.

💼 Example:

Let’s say you’re granted 1,000 RSUs. With a four-year vesting schedule, you might receive:

• 250 shares after one year
• 250 more each subsequent year

You do not own any shares until they vest, so if you leave the company early, you forfeit the unvested portion.

💸 Tax Implications of RSUs

This is where things get tricky, and where proactive planning matters most.

📅 1. You Pay Taxes at Vesting

When RSUs vest, their value is treated as ordinary income, and it’s reported on your W-2. For example, if 250 shares vest and the stock is trading at $50/share, you’ll owe taxes on $12,500 of income.

🧾 2. Withholding Is Not Always Enough

Most companies withhold only 22% federal tax on RSUs, which may fall short of your actual tax rate (especially for higher-income earners). This can lead to a “surprise” tax bill in April unless you plan ahead.

💰 3. Capital Gains Tax Applies Later

If you hold the shares after they vest and later sell them at a higher price, you’ll pay capital gains tax on the difference:

• Short-term gains (sold within 1 year): taxed at ordinary income tax rates
• Long-term gains (held over 1 year): taxed at lower capital gains rates

📉 Market Risk and Diversification

Because RSUs are tied to your company’s stock, their value can fluctuate significantly. Holding too much of your company’s stock can create concentration risk.

A diversified strategy is often the best way to protect against volatility and support long-term goals like retirement or financial independence.

🧠 Planning Strategies for RSUs

At Lifetime Financial Planners LLC, we help professionals across a variety of industries, especially business executives, military veterans, and young professionals to make smart decisions about RSUs, taxes, and long-term financial planning.

Here are just a few tips clients should consider:

• Track your vesting calendar: Know when income will hit and plan for potential sales or tax payments.
• Estimate your tax impact: Work with a Tax Advisor to avoid tax “surprises”.
• Consider selling shares shortly after vesting to reduce concentration risk, prepare for tax ramifications, and fund important life goals.
• Align your RSUs with your broader Financial Plan: do not let taxes or complexity derail progress.

🤝 Need Help with RSU Planning?

RSUs can be a valuable tool for building wealth, but only if you manage them wisely. If you would like to understand how RSUs fit into your financial picture, or you are facing a big vesting event, let’s talk.

I work one-on-one with professionals to demystify equity compensation, optimize tax outcomes, and create custom financial plans that align with your values and goals.

📍 Schedule a FREE introductory Zoom or Phone Meeting consultation today https://calendly.com/lifetimefinancialplanners