Your clients and prospects may receive restricted stock units (RSUs) as a company benefit, and look to you for recommendations and point of view.

Did You Know?
RSUs can be confusing because of their complicated names; however, there is nothing especially magical about this kind of compensation awards. “Restricted” simply means that the recipient cannot dispose of them until they vest and become tradeable stock.

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Key Takeaway

Your client can sell RSUs upon vesting and diversify or donate the cash proceeds. It’s important to remind clients and prospects they cannot take action until shares vest.

Questions to Ask Clients and Prospects

Conversation starters to help gauge their level of understanding, meet them where they are and present the appropriate options.

Question

Do you receive RSUs as part of your compensation?

Question

Do you receive RSUs as part of your compensation?

Why Ask This?

RSUs are a promise to deliver shares of company stock, or the cash equivalent, to the holder on a specified event or date (known as vesting). Some companies award a set number of RSUs, while others award RSUs based on a set dollar value.

Question

Do you know the vesting schedule for your RSUs?

Question

Do you know the vesting schedule for your RSUs?

Why Ask This?

Typically, vesting happens over several years, and the employee has no control over the timing. Vesting can be anywhere from immediate at grant through five years or longer.

Question

Do you know when RSUs are taxed?

Question

Do you know when RSUs are taxed?

Why Ask This?

RSUs are not taxed when they are awarded. At vesting, the shares trigger ordinary income tax on the full market value of the vesting portion of the award. The cost basis on the shares is the market price at vest.

Question

Do you know the main considerations with RSU taxation?

Question

Do you know the main considerations with RSU taxation?

Why Ask This?

  • Withholding of taxes at vesting may not be sufficient to meet your client's tax bill.
  • Your client may want to set aside some cash for tax time, or include the likely shortfall in their next estimated tax payment.
  • RSUs should not be confused with restricted stock, which are actual shares of stock and may allow the executive to take an 83(b) election.

Next Step

Brush up on the details of vesting in order to have a full picture of your clients’ and prospects’ situation.

KEEP LEARNING

Nonqualified Stock Options: Incentive Compensation

LEARN MORE about Nonqualified Stock Options: Incentive Compensation
 
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Tax-loss harvest transactions aren't beneficial in a retirement account because the losses generated in a tax-deferred account cannot be deducted.

The Firm does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Tax laws are complex and subject to change. Investors should always consult their own legal or tax professional for information concerning their individual situation.