RSU Strategies
RSUs (Restricted Stock Units) can be a big part of employee compensation packages, especially in the tech industry. They should not be overlooked as a wealth building tool. It’s important to have a plan around this part of your compensation that aligns with your goals.
Some questions to consider with your RSUs:
- What’s your view of your company’s growth and future? Why do you feel that way?
- How long do you plan to stay with the company?
- How does this asset fit into your comprehensive financial plan?
- How would you feel if the stock took a large decline in value?
- How would you feel if you sold your shares right before the stock went up?
Your plan should also consider taxes. Once vested, RSUs are taxed at your ordinary income rate. Your employer typically withholds income taxes for you. However, if you have other sources of income besides your salary, this withholding may not be enough to cover your taxes. If you choose to not sell your RSUs when they vest and instead keep them for at least one year and one day, then any additional gains on the stock when you later sell will be at taxes at long-term capital gains rates. For most people the long-term capital gains rate will be lower than their ordinary income tax rate.
You will also probably pay state taxes on your gains (unless you live in Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, or Wyoming). For example, a married couple in Colorado with a joint adjusted gross income between $83,350-$517,200 in 2022 would pay 15% in federal capital gains taxes plus an additional 4.5% for Colorado state taxes for a total tax rate of 19.5% on their long-term capital gain. If in 2022 your adjusted income is above $517,200 then your federal capital gains rate will be increased to from 15% to 20%.
There are various strategies you can take with your RSUs, but the best one is the one that fits your individual objectives. Working with a CERTIFIED FINANCIAL PLANNER™ and a tax accountant or CPA can help determine the best approach for you.
If you would like to learn more about RSU taxation, here is a great article by Picnic Tax.
Please Note: I am not a tax advisor and this should not be construed as tax advice. Please consult a tax advisor for questions relating to your situation.
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