RSU and Equity Compensation Planning

What Are Restricted Stock Units (RSUs)?

Restricted stock units are a form of employer compensation that generally provide employees with shares of company stock after specified vesting requirements are met.

RSUs can be an important part of total compensation, particularly for professionals working in technology and other industries where equity compensation is common.

As awards vest over time, employees may accumulate meaningful exposure to the company they also rely on for salary, benefits, and future compensation.

RSUs and Taxes

RSUs can create multiple tax considerations.

The value of RSUs is generally treated as compensation when the shares vest and are delivered. After the shares are received, subsequent changes in value can create capital gains or losses when the shares are eventually sold.

Tax withholding at vesting may not necessarily equal an individual's final tax liability.

Because tax circumstances vary, equity compensation decisions can benefit from coordination between financial planning and the appropriate tax professional.

Employer Stock and Concentration

Employees who receive equity compensation can gradually accumulate a larger position in their employer's stock.

That can create concentration because employment income, future compensation, benefits, and investment assets may all depend in part on the same company.

The appropriate level of employer-stock exposure depends on the individual's circumstances, goals, risk tolerance, tax considerations, liquidity needs, and broader investment portfolio.

How Does Equity Compensation Fit With a 401(k)?

A 401(k) and equity compensation are often evaluated separately, even though both can be important parts of the same financial picture.

Relevant considerations may include:

• Overall investment allocation

• Employer-stock exposure

• RSU vesting schedules

• Workplace retirement-plan investments

• Taxable investment accounts

• Existing IRAs

• Cash reserves

• Upcoming spending needs

• Tax considerations

• Retirement goals

Reviewing these pieces together can provide additional context around risk, diversification, liquidity, and longer-term planning.

What Happens When You Change Jobs?

A career change can create additional decisions involving both retirement accounts and equity compensation.

Depending on the employer and award terms, a job transition may affect unvested equity awards, vested company stock, employee stock purchase plan shares, and decisions involving an existing 401(k).

Understanding what is owned, what remains subject to vesting, and what options are available can help organize the transition.

Questions Worth Reviewing

Equity compensation can raise questions such as:

• How much of my overall financial picture is connected to my employer?

• How do my RSUs interact with my other investments?

• What happens as additional shares vest?

• How does my 401(k) fit with my employer stock?

• What tax considerations may apply?

• How much liquidity do I need outside of employer-related assets?

• How do these decisions fit with my longer-term financial goals?

There is not one answer that applies to every employee. The purpose of planning is to evaluate these questions within the context of the individual's broader financial circumstances.

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Kerns Legacy Planning LLC is a registered investment adviser. Educational materials are provided for informational purposes only and do not constitute individualized investment, tax, or legal advice.

Have Questions About How the Pieces Fit Together?

Equity compensation decisions often interact with investments, retirement accounts, cash flow, taxes, and longer-term financial goals.

If you would like to discuss how your RSUs, employer stock, workplace retirement plan, and other financial decisions fit together, Kerns Legacy Planning offers introductory conversations.

Get the 401(k) & Equity Compensation Review Checklist.

• Workplace benefits can involve more than selecting investments.

• Download a complimentary checklist covering 401(k) investment options, employer stock, RSUs, beneficiaries, account coordination, diversification, and other areas that may be worth reviewing.

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