RSUs Explained: Should You Hold or Sell When They Vest?

Restricted Stock Units, or RSUs, are one of the most common forms of equity compensation, and also one of the most misunderstood.

At a high level, RSUs are simple. They are company stock awarded to you as part of your compensation, usually tied to a vesting schedule or performance requirement. But the decision of what to do when those shares vest is where things get interesting.

The easiest way to think about RSUs is this:

RSUs are very similar to a cash bonus. They’re just paid in company stock instead of dollars.

That framing alone can completely change how you approach them.

What RSUs Really Are

When your company grants RSUs, you don’t actually own the stock yet. You own a promise of stock. Once you satisfy the restriction, typically time or performance, the shares vest and become yours.

At vesting:

• The shares are deposited into your brokerage account

• The value is based on the stock price on that day

• The value is treated as ordinary income and reported on your W-2

From the IRS’s perspective, that vesting event is the same as your employer handing you a bonus check equal to the value of the shares.

The only difference is what form the bonus arrives in.

The One Question That Should Guide Your Decision

When RSUs vest, most people ask, “Should I sell or hold?”

I prefer a simpler question:

If my company paid me this amount in cash, would I turn around and use it to buy my company’s stock?

• If the answer is yes, holding your RSUs may make sense.

• If the answer is no, selling your RSUs when they vest is usually the more logical move.

This removes emotion and loyalty from the decision and reframes it as an investment choice.

A Simple Example

Let’s say you receive 8,000 RSUs on a four-year vesting schedule, with 2,000 shares vesting each year.

The grant price doesn’t matter. What matters is the stock price on vesting day.

Year one:

• 2,000 shares vest

• Stock price is $10

• You receive a $20,000 bonus paid in company stock

Your employer automatically sells some shares to cover taxes. Let’s say:

• 500 shares are sold to cover withholding

• You now own 1,500 shares worth $15,000

Now pause and ask the key question:

Would you write a $15,000 check today to buy your company’s stock?

If the answer is no, selling those shares immediately may be the right choice. By selling right away, you avoid market risk, and no additional taxes are owed beyond what was already withheld.

If you hold the shares and sell later, any change in value is treated as a capital gain or loss.

Understanding the Tax Side of RSUs

RSUs are taxed in two phases:

At Vesting

• Taxed as ordinary income

• Included on your W-2

• Subject to federal, state, Social Security, and Medicare taxes

• Cost basis is the fair market value on vesting day

Many companies withhold taxes by selling a portion of the shares automatically. This is convenient, but it leads to one of the most common RSU mistakes.

The RSU Tax “Gotcha”

Default withholding is often not enough.

Federal supplemental withholding is typically 22 percent. In high-income households, your actual marginal tax rate may be significantly higher. State taxes, especially in states like California, can add another layer.

This can result in an unexpected tax bill if you don’t plan ahead.

Estimated tax payments or additional paycheck withholding may be necessary to avoid penalties and surprises.

Holding RSUs and Concentration Risk

Another factor many people overlook is concentration risk.

Your paycheck comes from your company. Your benefits come from your company. And now a growing portion of your net worth may also be tied to your company’s stock.

That’s a lot of exposure to a single source of risk.

Selling RSUs and reinvesting elsewhere can help diversify your financial life without changing how committed you are to your role or your employer.

What About Future RSUs?

It’s also important to understand the value of your unvested RSUs.

Future RSU income represents pre-tax compensation you have not yet received. If you’re considering a job change, this is part of what you may be walking away from.

Knowing that number gives you leverage when negotiating:

• A signing bonus

• Replacement equity

• Higher base pay or annual bonuses

RSUs are part of your compensation package, even if they haven’t vested yet.

The Bottom Line

RSUs are not complicated, but they are often emotional.

By treating them like a cash bonus paid in stock and asking the right question at vesting, you can make clearer, more confident decisions.

Holding can make sense. Selling can make sense. What matters is that the choice aligns with your goals, your cash flow, and your overall investment strategy.

If you’re unsure, that’s usually a sign it’s time to slow down, run the numbers, and make the decision intentionally.

Do you want to work with a financial planner who can help you evaluate your biggest financial decisions from the perspective of what has the best chance of funding your best life? Reach out and schedule a free consultation.

This article is for educational purposes and does not constitute personalized financial advice. Always consult a qualified financial advisor before implementing complex financial strategies.