Managing RDDT RSUs
Reddit, known as RDDT on the stock market, is one of our favorite social media platforms. Although our Subreddit currently only has a whopping number of 30 followers, we don’t hold it against RDDT.
RDDT IPOed which means that all Reddit employees holding RSUs will soon have the opportunity to cash out some of their equity and may begin to wonder what they should do with their RDDT RSUs.
If you’re an employee at Reddit, you’ll want to:
Get a sense of the timeline ahead.
Learn the basics of your RDDT RSUs.
Learn Post-IPO best practices so you can effectively manage your RDDT equity.
This article should help you accomplish these three things. If you’d like more info than we cover in this article, we’ll link out to other content so you can continue learning.
RDDT IPO and Lock-up Period Timeline
Reddit IPOed on 3/21/24 and the Lock-up Period is set to expire after 180 days (around 9/17/24).
The IPO date is the date on which RDDT officially becomes tradable to the public.
The Lock-up Period refers to the period of time employees/insiders must wait before they can sell their RDDT shares.
How RDDT RSUs are Taxed
Depending on how long you’ve worked for RDDT, you’ve likely been accumulating what are called double-trigger RSUs.
These RSUs are designed to be released to you once you’ve (1) worked at Reddit for some number of years, and (2) have stayed long enough to experience a liquidity event.
So congrats! You’ve officially struck Reddit Gold because an IPO counts as a liquidity event!
On the date of IPO, your RDDT RSUs that have time-vested were released to you, and it’s at that moment when a tax calculation is made to determinee how much you’ll owe in taxes.
RDDT RSU Tax Example
If you have 20,000 RDDT RSUs that were granted when the price was $15, but the value at the time of IPO is $34, you’ll now owe taxes on 20,000 x $34. Which is your tax rate times $680,000. (Gulp!)
Numbers this big also mean that 2024 will be a big tax year for Reddit employees with RSUs.
You may ask, “So if employees aren’t able to sell RDDT RSUs right away, how are they supposed to make sure that they have enough to cover the taxes?”
That’s a great question and the answer has to do with withholdings, which we’ll address next.
RDDT RSU Withholding Rate
Withholding occurs when an employer, in this case Reddit, sets aside a chunk of cash or stock to cover future taxes owed by the employee. The amount withheld will depend upon the value that’s being paid out, but it’s a requirement by law that employers must collect some form of withholding.
With each monthly paycheck, your employer withholds money for you to help ensure that you’ll be able to cover the taxes. The same thing happens whenever RSUs vest only with stock. And now, with RDDT’s IPO, there will be a lot of vesting/withholding going on.
Typically, companies withhold for RSUs at a flat rate of 22% if you make less than $1M a year and withhold at 37% if you make more than $1M a year.
The problem with this is that it’s very common for people to be taxed at more than 22%. So when tax time rolls around, people are shocked to find that they owe taxes on the difference between that 22% and their actual tax rate.
It can be helpful to elect to withhold taxes at the 37% rate just to avoid this problem, but increasing your withholding to 37% can also mean missing out on some gains if the stock price does really well.
Post-IPO Tips for RDDT RSUs
After helping hundreds of readers through IPOs, here are some basic tips and best practices that you might find helpful:
Tip #1 - Understand your withholding
We just discussed how taxes are typically withheld, but beyond just the concept of withholding, it’s important for you to be fully aware of how this is happening with each of your paychecks.
After the IPO, when you have RSUs withheld, be sure that you check your paystub to verify how much was actually withheld.
Once you do that, you’ll want to run some estimates to determine what your tax shortfall might be so that you can make a plan to have cash ready come tax time.
Tip #2 - Make a plan to sell RDDT RSUs after lock-up.
We highly recommend not checking RDDT’s stock price every day because 180 days of a lock-up is going to feel like an eternity. Rather than stress daily about the stock price, it’s more productive to make a plan for how many RSUs/shares you intend to sell once the lock-up ends.
Here are some questions to help guide you through the process of forming of a selling plan:
Do you have debts that you need to pay off?
Are you currently saving for anything in particular?
Does Reddit make up the majority of your net worth?
Are you continuing to receive Reddit equity?
How much Reddit equity is too much for you?
Do you have other investments?
How will you feel if you miss out on X dollar amount of gain?
How will you feel if you lose out on X dollar amount because you didn’t sell?
Making a plan to sell RDDT RSUs will become more involved if you have large sums of RSUs and/or whether you have RDDT ISOs or NSOs.
Tip #3 - Plan for trading windows.
Once RDDT’s lock-up period is over, employees are still going to be subject to quarterly trading windows.
This may not seem like a huge deal, but it has a major impact on how freely you’re able to sell future RSUs/shares.
If you decide not to sell RDDT RSUs during the first window after lock-up that’s totally fine, just know that you’ll need to wait 3 months before you’ll be able to sell your shares again.
Tip #4 - How much RDDT do you want to continue to hold?
Yes, we realize that this was one of the questions that we just listed above, but we’re repeating it here because it’s that important.
There will be people at RDDT who become deca-millionaires from this IPO and there will be others who make 10 to 20 thousand.
Depending on the level of RDDT equity you’ve received, the RDDT equity you can expect to receive in the future, and your own personal financial situation, the level of RDDT you’ll want to hold going forward will vary drastically.
If you have friends saying “I’m going to sell everything.” Awesome, good for them.
It’s important to think through the personal pros and cons of this decision so that you arrive at one that’s optimal and comfortable for you. We’d also like to gently remind you that no matter what you decide, you’re never going to get the decision perfectly right and that’s okay.
Tip #5 - Consult a professional.
Our last tip/best practice is to consult with a professional.
If you want to work with us, you’re welcome to review our services and schedule a time for us to connect.
IPOs are often a once-in-a-lifetime event. If you have a lot of equity, it’s worth spending a little extra time and money to ensure that you get it right. RSUs might be easy enough to manage, but if you have other equity types that you’re also trying to balance, you could end up paying more taxes than you need to.
Final Thoughts on Managing RDDT RSUs
Our Subreddit isn’t active enough to warrant some of the shares Reddit is handing out to mods, but we wish all Reddit RSU holders a very successful IPO!
Managing RSUs through an IPO can be a wild ride. We encourage you to take time to think through your strategy during the lock-up period (but without procrastinating too badly).
As always, we’re here to help if you have any questions. Thanks for reading.