Your company has had a great year, and everyone is looking forward to the restricted stock units (RSUs) received last year as a bonus to vest. You’re excited, but you’re also wondering, “When should I sell my RSUs?”
It’s a sensible question. Selling your restricted stock units after they vest isn’t as straightforward as some make it seem. Your strategy regarding what to do with your RSUs depends on your financial goals, risk tolerance, and tax implications.
Talking to a financial professional can help guide your decision-making. The wealth managers at Deerfield Financial Advisors take a unique approach to financial planning that connects clients’ resources to their priorities.
Let’s take a closer look so you can answer this question with confidence and clarity.
What Is an RSU?
A restricted stock unit, or RSU, is a form of compensation. Employers may grant shares of company stock to employees as a performance bonus, in exchange for their service to the company, to encourage long-term loyalty, or for many other reasons. However, RSUs don’t have any value until they vest.
Your RSUs vest based on criteria the company sets, whether it’s a certain period, a performance milestone, or both. Once those conditions are met, your RSUs become vested. You then own company stock which you can sell or hold.
Now it’s time to answer, “When should I sell my RSUs?”
Factors to Consider About RSUs
Once your RSUs vest and you own the company stock, you’ll have several key factors to consider. They include:
Company Performance
Before you consider anything else, evaluate your company’s performance and the general market environment. The direction in which your company is headed can influence your decision regarding other factors.
Financial Situation and Goals
Take time to assess your financial situation and goals. You may have an immediate need for the money if you want to help a family member, build an emergency fund, or cover an upcoming expense. Or perhaps you have a long-term goal to save for retirement, so it makes sense to keep the stock invested. Regardless, your personal circumstances should dictate your decision.
Tax Implications
When RSUs vest, the fair market value of the shares becomes ordinary income. Your employer withholds taxes to cover that. However, there are other tax considerations, namely capital gains and losses. If you sell immediately, any short-term capital gain shall be taxed at your ordinary rate. But if you sell a year later, you could pay a lower long-term capital gains tax.
Portfolio Diversification
Holding on to your RSUs keeps your portfolio concentrated in your company’s stock, exposing you to the risk that the company may underperform or meet some hardship. It’s a double risk since you’re an employee. But if you sell, you can reinvest your proceeds into other investments to diversify your portfolio.
When Should I Sell My RSUs?
Some employees choose to sell their RSUs immediately. The rationale is to safeguard their finances by capturing the value of the stock at vesting and reducing their concentration risk. However, the best time to sell depends on your individual financial goals and risk tolerance.
Consult a Wealth Manager
Instead of sitting and wondering, “When should I sell my RSUs?”—consider consulting a financial professional. At Deerfield Financial Advisors, we have extensive experience assisting executives—including those at Eli Lilly— with their compensation packages and can provide you with guidance on your RSUs. To learn more about how we can help, call us at (317) 644-7701 or email mroop@deerfieldfa.com.
About Matt
Matt Roop is Wealth Manager and Shareholder at Deerfield Financial Advisors, a fee-only financial advisory and wealth management firm with offices in Indianapolis and Chicago. In his role, Matt acts as a personal “chief financial officer” for his clients, overseeing every facet of their financial landscapes, orchestrating strategies to grow their wealth, and enhancing their financial clarity. Catering to the distinct needs of lawyers, engineers, and business owners, he empowers them to embrace their passions and lead their optimal lives. Matt conveys a depth of experience and a calm demeanor that clients find reassuring and soothing, and he loves providing peace and confidence around their financial future.
Matt received a Bachelor of Science from Indiana University and a Master of Business Administration (MBA) from George Washington University. He is a NAPFA Registered Financial Advisor and holds the CERTIFIED FINANCIAL PLANNER™ and Certified Exit Planning Advisor (CEPA) designations. Committed to staying at the forefront of his field, he is actively involved with the Exit Planning Institute, National Association of Personal Financial Advisors, and the Estate Planning Council of Indianapolis. Since 1997, Matt has been involved in the investment and wealth management realm, with experience at Charles Schwab & Co., Inc., as well as a boutique Indianapolis-based independent advisory firm and a brief stint at his family’s closely held business.
Outside the professional realm, Matt serves his Indianapolis community by volunteering for Meals on Wheels of Hamilton County and is on the Executive Leadership Team for the Indiana Alzheimer’s Association’s Walk to End Alzheimer’s. He is dedicated to financial stewardship and continuous growth, with an unyielding commitment to enhancing the lives of both his clients and his community. Matt and his wife, Kimberly, reside in Carmel, IN, with their four children, who are all pursuing their college dreams. When he’s not working, he enjoys traveling, reading, and spending time at his lake house in southern Indiana with family. To learn more about Matt, connect with him on LinkedIn.
