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How Should I Manage My Restricted Stock Units?

How Should I Manage My RSUs? 

If you are an executive at a publicly trade company, there's a good chance you are receiving restricted stock units (RSUs) as a portion of your income. The first question, of course, is what are RSUs? Restricted stock units are simply shares in your company that have some rules attached: (1) When your earn them (the grant date); (2) When they are fully yours (the vest date); (3) And when you sell them (The sell date). 

As you can see, functionally, RSUs are pretty straightforward. However, how you manage them can be a more complicated story. We've explored this dynamic a handful of other blog posts: 

However, let's dig a bit further into RSUs and explore some other ways to manage their tax and financial impact: 

Corporate Employee discusses her RSU sales strategy with her financial advisor and tax advisor virtually.

Which RSU shares should I sell first? 

First, we should note that we believe the simplest way to manage your RSUs is to simply sell on the vesting date. This strategy will dramatically decrease your tax complexity and help facilitate the diversification of your investment portfolio (rather than building a large concentrated position in your company's stock). Plus, RSUs are technically just income to you and they are taxed as personal income at vesting. If you sell, you get to decide how to invest (or spend) the proceeds, not your company. 

That said, if you do end up with a significant allocation to your company's stock via RSU grants, that's completely fine! When you decide to sell, you'll just want to ensure that your sales strategy is well-coordinated with your tax plan and financial plan.  

There are really three questions you need to know: 

  • How many vested RSUs do I own? 
  • How long have I owned each unit? (i.e. how much time has passed since the vesting date?)
  • How much gain or loss is there in each share? 

The Specific Identification Method and your RSUs

How do you do this? Enter the specific identification method. Basically, when you sell stocks you have the ability to decide which tax lot specifically to sell. That's called, you guessed it, the 'specific identification method' and it is a hugely important concept when managing your RSUs. 

When you use this method while selling or planning to sell your RSUs, you get to decide which shares specifically to sell. In other words, depending on the factors at play in your specific scenario, you can decide whether to take gains or losses, how much gain/loss, and what type of gain/loss (short-term/long-term). 

Is It Better to Sell RSUs with More or Less Gain? 

If you have multiple share lots, this is a really great question to ask prior to selling your vested RSUs s. Ultimately, the answer will be entirely dependent on your unique financial and tax situation both in the current year and future years, and we recommend consulting with a tax professional prior to proceeding. 

As an example, if you are in high marginal tax bracket and expect to stay that way for the foreseeable future, it may make sense to sell only high tax basis (low gain) shares. You can hang on to any low basis shares, or consider donating or gifting them if you have charitable/gifting goals. 

On the other hand, if you just retired, went on a sabbatical, or experienced an income drop for any other reason, it may make sense to take advantage of the lower tax bracket and sell low tax basis (high capital gain) vested shares. 

These are two very simplistic scenarios, and ultimately the factors playing into this decision can be quite complicated. If you find yourself in a situation with multiple share lots with various capital gain impacts, we recommend you discuss your options with a tax professional prior to proceeding. 

Interested in talking with a team of financial professionals regarding your RSUs, ISOs, or other company stock? Schedule a call below! 

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