What to Do with RSUs After Vest

Figuring out what you should do with your RSUs after they vest is critically important. At vest, your RSUs are transformed from something with purely hypothetical value to something with actual value that you can use. 

The purpose of this article is to help you figure out what you should do with your RSUs after they vest.

If you haven’t prepared for this moment, you may find yourself scrambling to figure out the ideal  course of action. The purpose of this article is to walk you through some steps so you can determine what will work for you.

Know Your Company Equity Plan’s Specifics

The first thing you’ll want to do after your RSUs vest is be sure you have a good general understanding of your company’s equity plan and what rules/policies you have to follow. (This sounds scarier than it is.)

There are three major things that you’ll want to have a good understanding of:

#1 - When are the trading windows?

This seems like a no-brainer, but people always forget to keep track of when they are and aren’t allowed to sell their shares. If you have a vest coming up, you may be forced to wait until the next open trading window arrives before you're able to sell anything.

You don’t have to have your company’s trading windows memorized, just pay attention throughout the year and have a general idea of when they’ll happen. Typically trading windows occur shortly after a company releases its latest earnings report to the public.

#2 - When do shares actually settle?

This one doesn’t apply to all companies, but sometimes RSUs will vest on one date, and then settle on another. DocuSign for example has set settlement dates for their employees’ RSUs in every quarter (March, June, September, and December), so if you have an RSU vest before those dates, your receipt of the shares will be pushed back until the nearest settlement date.

It’s important for you to be aware because if this policy is in place, you may have RSUs vest in January, but won’t be able to sell them until March.

Typically these settlement dates also line up with open trading windows, so it’s usually not an issue.. 

Please note that if you have a settlement date after the vesting date, taxes are still calculated and attributed to you based on the value at vest!

#3 What choices do you have for withholding taxes?

It’s very common for people to be underwithheld for taxes when their RSUs vest. It’s typically caused by RSUs being withheld at 22% versus the rate at which the employee will actually be taxed at (which can be higher).

To address this, employers have started to offer a withholding choice instead of the standard 22% (or 37% if you have over $1M in income).

If you have options for electing higher percentages, you’ll want to be aware. Withholding properly at the time of vesting can save you some time and helps you avoid paying tax penalties for being underwithheld.

It’s also important to understand your vesting schedule and whether or not you have double-trigger RSUs.

Broadly Evaluate Your RSU Vest

Once your RSUs have vested, you’ll want to take a second to reflect on how large or small this particular vest is and what impact it might have on your financial situation.

If you had $5k worth of RSUs vest, there might not be much planning that needs to be done and the changes to your life are likely to be pretty marginal.

If you had $500k worth of RSUs vest, there is likely some planning that needs to be done on both the tax front and on the personal side.

Evaluate and Estimate Taxes on Your RSU Vest

We’ve discussed previously how to determine your RSU tax rate, but you’ll want to take some time to double check possible tax implications.

You can look at your paystub for the specific dollar amount of RSUs that’s becoming taxable, or you can review the spreadsheets/reports available to you through the stock plan brokerage account (usually at Etrade, Schwab, Fidelity, etc.).

RSUs are typically fully taxable at vest.

Let’s say, for example, you have 1,000 RSUs vesting today and the company is trading for $50. You'd have $50k of taxable income included on your paystub and you’ll owe tax on this amount.

From here you can check your pay stub to see how much was withheld, and then you can calculate if there is any shortfall between what was withheld and what you’re expecting to pay in taxes.

We’ve built a free RSU tax calculator to help make this a little easier, but you still need to determine your own tax rates.

Decide to Sell, Hold, and/or Diversify

The next thing to think through after your RSUs vest is what you want to do with the shares you receive.

We’ve written content addressing how much company stock is too much and whether you should sell RSUs right away.

Whether you decide to sell, hold, and/or diversify your RSUs after vest should be part of a plan that you’ve made proactively instead of just reacting to how each individual RSU vest unfolds.

There’s no knowing what will happen with your specific company, and since RSUs are fully taxed at vest, it’s usually a good idea to diversify at least a portion of what vested into something that’s not concentrated in one company.

After you’ve made a general plan of what you want to do, you’ll then want to decide which batch of RSUs will be the best to sell from.

Depending on what you’ve decided in the past with your RSUs, how the stock price has moved, and where the stock price sits after a vest, you may want to sell from previous vests before selling from the most recent one.

Each vest of RSUs creates a different “lot” of stock. Optimizing lots probably warrants its own article as it’s too much to cover here. 

Prepare Taxes Carefully the Following Year

The next thing you’ll want to do after your RSUs vest (though this usually happens months later), is to ensure that your taxes are done properly. It’s really easy to accidentally pay taxes twice on your RSUs if you’re using TurboTax, FreeTaxUSA, or another provider.

This happens because most brokerages do not track that you paid taxes on your RSUs at vest and instead default to a cost basis of $0. If this error is left uncorrected, you could end up paying tax twice on that portion of your stock sale. 

Final Thoughts on What to Do with RSUs After Vest

There’s no way to know exactly what the future holds, so it’s impossible to perfectly optimize what you do with your RSUs after vest, but managing your RSUs wisely can be an important step in helping you achieve your  financial goals.  

If you’d like some help figuring out what to do with your RSUs after vest, please reach out to us. We’d be happy to point you in the right direction.