RSUs are part of your compensation. This post covers the mechanics, the decisions they create, and what most people get wrong about them.
If you work in tech, RSUs are almost certainly part of your compensation. They show up in offer letters, come up in performance reviews, and accumulate in a brokerage account that your employer set up on your behalf. But for most people, the understanding stops there.
This post is the foundation. We are going to cover what RSUs actually are, how they work mechanically, how they compare to other types of equity, and what you need to understand before your first vest date arrives.
What RSU Stands For
RSU stands for Restricted Stock Unit. The name tells you most of what you need to know. It is a unit of company stock that has restrictions on it. Specifically, you cannot access it until you have met certain conditions, usually staying at the company for a defined period of time.
Once those conditions are met, the restriction lifts and the shares are yours. That moment is called vesting.
Key Concept
An RSU is not stock you own today. It is a promise of stock in the future, contingent on meeting specific conditions. Until it vests, it has no cash value and cannot be sold, transferred, or used in any way.
How RSUs Work, Step by Step
Here is the lifecycle of a typical RSU grant:
Grant date. Your employer awards you a certain number of RSUs. This is the date they appear in your grant agreement. On this day, you do not own anything yet. You have a promise of future shares, nothing more.
Vesting period. A vesting schedule determines when and how you earn the shares. The most common in tech is four years with a one-year cliff, meaning nothing vests in the first year, then a portion vests at the one-year mark, and the rest vests gradually after that. We will go much deeper into vesting schedules in the next post in this series.
Vest date. This is when shares are actually delivered to you. On this date, the shares become yours and the IRS treats the value as ordinary income. This is the most important date from a tax perspective.
Post-vest decision. Once shares vest, you decide what to do with them. You can sell immediately, hold them, or sell a portion and hold the rest. Each choice has different tax implications.
Key Concept
The vest date is when you owe income taxes. Even if you hold the shares and the price falls the next day, you already have a tax obligation based on the value at vesting.
Why Companies Offer RSUs
Understanding why your employer offers RSUs helps you think about them more clearly.
RSUs are a retention tool. The vesting schedule creates a financial incentive to stay. If you leave before your shares vest, you walk away from unvested equity. The longer you stay, the more you earn. This is by design.
They are also a way for companies to align your financial interests with theirs. When you own company stock, you benefit when the company does well and feel the impact when it does not. This is true whether you work at a large public company or an early-stage startup.
Finally, RSUs are a way to offer competitive compensation without increasing cash outlay. For a company managing its burn rate, paying part of your compensation in equity rather than cash is a practical financial decision.
What RSUs Actually Mean for Your Finances
Here is where most people need to shift their thinking.
RSUs are not a bonus. They are not a windfall. They are compensation you earned by showing up and doing your job. The fact that they arrive in a brokerage account rather than your paycheck does not make them different in kind. It makes them more complicated to manage.
Because they vest over time, RSUs can build up in ways that are easy to ignore. You might go years accumulating shares without a clear plan for what they are working toward. That accumulated stock can quietly become a significant portion of your net worth, concentrated in the same company that also pays your salary.
Things to Watch Out For:
- RSUs create taxable income at vesting whether you sell or not. Make sure you understand what your employer withholds and whether it covers your actual tax obligation.
- Holding too many shares in your employer’s stock means both your income and your savings are tied to the same company. If the company struggles, both are affected at the same time.
- Unvested RSUs are not guaranteed. If you leave the company or are laid off, you lose any shares that have not yet vested.
- Grant agreements have specific terms. Not all RSU grants are structured the same way. Read yours carefully, especially if you work at a private company.
What Comes Next in This Series
This post is the foundation. The rest of this series goes deeper into each part of the RSU picture:
Next: RSU Vesting Schedules Explained — we break down every major vesting structure you will encounter in tech, including cliff vesting, back-loaded schedules, performance-based grants, and double-trigger vesting at private companies.
RSU Series by Valoria Wealth Management
Post 1 of 5: What Is an RSU? (You are here) |
Post 2: Vesting Schedules Explained |
Post 3: Double Trigger Vesting at Private Companies |
Post 4: The RSU Tax Bill Nobody Warned You About |
Post 5: RSUs and Cost Basis
The Valoria Perspective
RSUs are one of the most powerful wealth-building tools available to women in tech. They are also one of the most misunderstood. The goal of this series is to change that. Understanding what you have is the first step toward using it well.
Not sure what to do with your RSUs?
I help women in tech build a clear, confident plan around their equity compensation.
Maria Castillo Dominguez, CFP®, EA
Founder of Valoria Wealth Management. Maria specializes in financial planning for high-earning women in tech with equity compensation, with a focus on building long-term wealth, optimizing their tax situation, and creating more financial freedom in their lives.
This content is for informational and educational purposes only and is not intended as individualized financial, investment, or tax advice. Past performance is not indicative of future results. Any opinions expressed are as of the date of publication and may change. Please consult your financial advisor or tax professional regarding your specific situation before making financial decisions.
