What do I do with my RSUs? Thanks for coming back to the Planning for Your Purpose blog! The purpose of the blog is to introduce financial planning concepts that I come across every day. I want to start discussions about that will educate, benefit, and improve your financial life. Ultimately, to help you focus on your telos! So, what’s an RSU? RSU is short for Restricted Stock Unit. The simplest definition is that an RSU is a form of stock based compensation designed to reward employees. While the RSU’s value is based on the value of the company’s stock it has no value when issued, however once a predetermined event occurs (passage of time or reaching a stated goal) the RSU vests. While these types of arrangements have been around a long time, especially for very senior management, they have gained more popularity since the early to mid 2000’s for a wider group of employees. They are often viewed as preferable to more traditional stock option grants. RSU Basics RSUs will be granted to you by your company, which is known as the grant date. After that, there are a few key dates to pay attention to. The next important one is the vesting; that’s the point at which your options vest and transform into shares of stock instead of “units.” This can be based on specific targets set forth by the company or, as is often the case, the passage of time. As an example, let’s say your vesting period is 3 years. In that example, if you were granted the RSUs on April 1st 2019, it would vest April 1st 2022. When the units vest, the value of the stock is taxable as ordinary income to you. Your plan will probably cash in some of the shares to be withheld to pay taxes – as an example, you may have 1,000 RSUs, but only receive 800 shares of stock, because 200 shares were sold to pay taxes. The next date that will be important is the sale date. The vest date is the purchase date, so if you sell within one year of vesting, you will be responsible for taxes at the short term capital gains rates. If you wait over a year, you will pay taxes on the gains at long term capital gains rates. It can be a big difference and is important to pay attention to this. What should I do with my RSUs? You should be glad to have them, though they require more of your attention, knowledge, and time to manage than a paycheck or cash bonus. The options, once your RSUs vest, are to either hold them or sell them. . . Some Items for your Consideration Taxes You need to think about the different capital gains rates and tax ramifications of the sale for you. Is it a lower or higher income year for you? What do you think your income will be in the next few years? Maybe you could take advantage of lower income and lower taxes next year. Concentration and Diversification You need to consider concentration risk, is your entire investment portfolio (or a large portion of it) made up of this one stock? Plus, your income comes from this company? If both of those are true, you are taking unnecessary risk by being concentrated in one company. You have to decide how much exposure to one stock is right for you, but understand there are risks on multiple levels when you work for the company as well. Risk Tolerance & Time Horizon You need to know and understand your risk tolerance. Is one stock too risky of a position? You can reduce or remove many risks by diversifying your investments. Are you diversified? What’s the time horizon for your goals? Do you have the time to wait for the stock to recover if the price falls? Would you use the proceeds from the sale for long term or short term goals? Have you written down your goals and prioritized them? Ok, so what should I do? There’s no one-size-fits-all solution for this. Consult your financial advisor to help make an informed decision or do your research (this blog is a great first step) to make a suitable decision for you and your family. I would recommend you make your decision with your long term financial plan in mind. I was recently in the Apple store for a recall on the battery in my laptop and the genius was asking me about their RSUs. His strategy was to sell as available and use for fun money. I didn’t have his full situation and he wasn’t asking me for advice, just seemed like he wanted to tell someone. Maybe living for today is his top goal. If so, he’s probably doing well toward pursuing his goals. Conclusion RSUs can be complicated. Figuring out how they fit into your financial plan is more complicated. Be sure you understand the taxes and important dates so you can make informed decisions when dealing with sophisticated investments. Review your goals, concentration, diversification, risk tolerance, short and long term time horizon, and have a plan. As always, save early and save often. Having a current financial plan is the best way to know where you are financially compared to where you want to be. More complicated investment vehicles, like RSUs, can be an important part of your financial plan and should be monitored closely. Some of your financial goals may be a long way off and some are likely coming soon. The earlier you start on the path of creating a financial plan, the easier it will be to get there or to make adjustments so you have a better chance of getting there. Do you want help deciding what to do with your RSUs? Call CERTIFIED FINANCIAL PLANNER™ Dennis LaVoy with Telos Financial at 734-468-3050 now to schedule a meeting to discuss your RSUs, review your financial situation, and craft a strategy to handle these. Telos offers free consultations and would love the opportunity to meet with you and discuss this in more depth. Don’t forget to check my website and blog for more information as well as my youtube channel for videos. Telos Financial is Plymouth, Michigan’s financial planner for Xennials, Millennials, Generation Xers, young professionals & their families. Financial advisor Dennis LaVoy, CFP®, CLU® founded Telos Financial to serve high income and high net worth young professionals. Dennis uses his experience, knowledge, and expertise to build lifelong relationships with his clients. He is the financial advisor for Ann Arbor, Metro Detroit, and across the country to achieve their goals. The views expressed are my own opinions and do not apply to every situation. Your situation may vary so make sure to consult a professional for advice prior to making any decisions.