Restricted Stock Units (RSUs) represent a form of employee compensation that vests over time, typically between three to five years. When RSUs vest, they convert into actual company stock shares that you own outright. The immediate question becomes whether to hold or sell.
For most employees, selling RSUs immediately upon vesting makes sense. Here's why. Once shares vest, you owe taxes on their full value at vesting, not when you eventually sell them. The IRS treats vesting as a taxable event. If you hold RSUs and the stock price drops, you still pay taxes on the higher vesting price while your shares lose value. This creates unnecessary tax drag.
Selling immediately locks in your compensation value and eliminates risk. You receive cash you can reinvest across diversified investments rather than concentrate wealth in a single employer's stock. This reduces portfolio volatility and removes the temptation to hold onto employer stock due to emotional attachment or misplaced loyalty.
However, selling immediately is not a universal rule. Your situation depends on several factors.
Company outlook matters. If you work at a strong growth company and believe the stock will outperform the market significantly, holding some vested shares might make sense. You'll still pay the vesting tax, but potential future gains could justify it.
Your financial situation also plays a role. If you already own substantial company stock through an employee stock purchase plan (ESPP) or previous RSU grants, concentrating more wealth in that single company increases risk. Selling lets you diversify.
Risk tolerance shapes the decision too. Conservative investors should sell immediately and redeploy proceeds into a diversified portfolio. Aggressive investors with strong conviction about company growth might hold portions of their vested grants.
Tax considerations extend beyond vesting. If you sell RSU shares within one year of vesting, gains receive short-term capital gains treatment, taxed at