What Are RSUs & How to Handle Them

By Ashley Kilroy · July 12, 2021 · 8 minute read

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What Are RSUs & How to Handle Them

You are probably pretty familiar with many of the standard offers in a job compensation package. When receiving an offer letter from a potential new employer, employees could typically receive a salary figure, paid vacation and sick day allowances, some type of health insurance, and, possibly, a retirement plan.

There may also be more unusual employment perks in the offer, such as the right to a creative sabbatical or tuition reimbursement.

Another benefit you may encounter is the opportunity to invest in company stock. Whether you’re a total investment newbie or someone who recites stock market terms in your sleep, the option to own some of your company’s stock could present an exciting opportunity to diversify your portfolio, help you reach your financial goals, and get an added benefit from the dedication to the company.

Equity compensation can come in many different forms. Two of the most common are employee stock options (ESOs) and Restricted Stock Units (RSUs).

Recommended: How Are Employee Stock Options and RSUs Different?

What is a Restricted Stock Unit?

So, what are restricted stock units?

Restricted stock units are a type of compensation offered to employees in the form of company stock. RSUs are not technically stock, though; they are a specific amount of promised stock shares that the employee will receive at a future date, or across many future dates.

Restricted stock units are a type of financial incentive for employees, similar to a bonus, since employees typically receive promised stock shares only when they complete specific tasks or achieve significant work milestones or anniversaries.

Know the Dates: Grant and Vesting

In the case of RSU stock, there are two important dates to keep in mind: the grant date and the vesting date.

Grant Date

A grant date refers to the exact day a company pledges to grant an employee company stock.

Employees don’t own granted company stock starting on the grant date; rather, they must wait for the stock shares to vest before claiming full ownership and deciding to sell, hold, or diversify stock earnings.

Vesting Date

The vesting date refers to the exact day that the promised company stock shares vest Employees receive their RSUs according to a vesting schedule that is determined by the employer. Factors such as employment length and specific job performance goals can affect a vesting schedule.

The employer that wants to incentivize a long-term commitment to the company, for example, might tailor the RSU vesting schedule to reflect the employee’s tenure at the company. In other words, RSUs would only vest after an employee has pledged their time and hard work to the company for a certain number of years, or the vested percentage of total RSUs could increase over time.

If there are tangible milestones that the employee must achieve, the employer could organize the vesting schedule around those specific accomplishments.

RSU Vesting Examples

Typically, the vesting schedule of RSU stock occurs on either a cliff schedule or a graded schedule. If you leave your position at the company before your RSU shares vest, you generally forfeit the right to collect on the remaining restricted stock units.

On a graded vesting schedule, an employee would keep the amount of RSUs already vested, but would forfeit leftover shares. If that same employee is on a cliff vesting schedule and their shares have not yet vested, then they no longer have the right to their restricted stock units.

Cliff Schedule

A cliff schedule means that 100% of the RSUs vest at once. For example, if you receive 4,000 RSUs at the beginning of your job, on a cliff vesting schedule you would receive all 4,000 on one date.

Graded Vesting Schedule

With a graded schedule, you would only receive a portion of those 4,000 RSUs at a time. For example, you could receive 25% of your RSUs once you’ve hit your two-year company anniversary, 25% more after five years at the company, 25% more after seven years, and the final 25% after 10 years.

Alternatively, a graded vesting schedule might include varying intervals between vesting dates. For example, you could receive 25% of your 4,000 total RSUs after three years at the company, and then the remainder of your shares (3,000) could vest every month over the next three years at 100 per month.

Are Restricted Stock Units Risky?

As with any investment, there is always a level of uncertainty. Even companies that are rapidly growing and have appreciating stock values can collapse at any time. While you do not have to spend money to purchase RSUs, the stock will eventually become part of your portfolio (as long as you stay with the company until they vest), and their value could change significantly over time.

If you end up owning a lot of stock in your company through your RSUs, you may also face concentration risk. Changes to your company can not only impact your salary but the RSU stock performance. Therefore, if the company is struggling, you could lose value in your portfolio at the same time that your income becomes less secure.

Adding diversification to your portfolio can help you minimize the risk of overexposure to your company. A good rule of thumb is to consider diversifying your holdings if more than 10% of your net worth is tied up with your company. Holding over 10% of your assets with your firm exposes you to more risk of loss. When calculating how much exposure you have, include assets such as:

•  RSUs

•  Stock

•  Other equity-based compensation

Are Restricted Stock Units Reported on My W-2?

Yes, restricted stock units are reported on your W-2.

The biggest difference between restricted stock units and employee stock options lies in the way that the Internal Revenue Service taxes them. While you owe tax on ESOs the moment you decide to exercise your options, RSU stock taxation happens at the time of vesting. Essentially, the IRS considers restricted stock units supplemental income.

When your RSUs vest, your employer will withhold taxes on them, just as they withhold taxes on your income during every pay period. The market value of the shares at the time of vesting appears on your W-2, meaning that you must pay normal payroll taxes, such as Social Security and Medicare, on them.

In some cases, your employer will withhold a smaller percentage on your RSU stock than what they withhold on your wages. What’s more, this taxation is only at the federal level and doesn’t account for any state taxes.

Since vested RSUs are considered supplemental income, they could bump you up to a higher income tax bracket and make you subject to higher taxes. If your company does not withhold enough money at the time of vesting, you may have to make up the difference at tax time, to either the IRS or your state.

So, it might be beneficial to plan ahead and come up with a strategy to manage the consequences of your RSUs on your taxes. Talking to a tax professional before or right after your RSU shares vest could help you anticipate future complications and set yourself up for success come tax season.

How to Handle RSUs

If you work for a public company, that means that you can decide whether to sell or hold them. There are advantages to both options, depending on your individual financial profile.


Selling your vested RSU stock shares might help you minimize the investment risk of stock concentration. A concentrated stock position occurs when you invest a substantial portion of your assets in one investment or sector, rather than spreading out your investments and diversifying your portfolio.

Even if you are confident your company will continue to grow, stock market volatility means there’s always a risk that you could lose a portion of your portfolio in the event of a sudden downturn.

There is added risk when concentration occurs with RSU stock, since both your regular income and your stock depend on the success of the same company. If you lose your job and your company’s stock starts to depreciate at the same time, you could find yourself in a tight spot.

Selling some or all of your vested RSU shares and investing the cash elsewhere in different types of investments could minimize your overall risk.

Another option is to sell your vested RSU shares and keep the cash proceeds.. This might be a good choice if you have a financial goal that requires a large sum of money right away, like a car or house down payment, or maybe you’d like to pay off a big chunk of debt. You can also sell some of your RSUs to cover the tax bill that they create.


Holding onto your vested RSU shares might be a good strategy if you believe your company’s stock value will increase, especially in the short term. By holding out for a better price in the future, you could receive higher proceeds when you sell later, and grow the value of your portfolio in the meantime.

RSUs and Private Companies

How to handle RSUs at private companies can be more complicated, since there’s not always a liquid market where you can buy or sell your shares. Some private companies also use a “double-trigger” vesting schedule, in which shares don’t vest until the company has a liquidity event, such as an initial public offering or a buyout.

The Takeaway

It’s important to consider your unique financial needs when deciding what to do with your RSU stock. Your specific financial goals, the amount of debt you may hold, the other types of investments you might be making, are all factors to consider when weighing the pros and cons of selling or holding your RSU shares.

Whether you have RSUs or not, a great way to build a diversified portfolio is by opening an account with the SoFi Invest® brokerage platform, where you can buy stocks, ETFs, cryptocurrency, and even buy pre-IPO stock. When you work with SoFi Invest you have access to complimentary financial planning, which can help you make the most of your restricted stock units.

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