If you work in the tech world, it is highly likely that you receive RSUs as part of your compensation. But what is really an RSU and what does it mean for your personal finances?
This first post is the foundation of a series of RSU blogs. In future posts, I will cover vesting schedules, double trigger vesting, taxation and things to watch out for, and more.
What RSU Stands For
RSU stands for Restricted Stock Unit. The name tells you most of what you need to know: it is a share of the company, but with restrictions on it. What is the restriction? Usually, time. You work long enough to make it to the vesting date and the shares are yours.
Key Concept
RSUs are a promise your employer makes to give you shares of the company in the future, contingent on specific conditions. Until the shares vest, you do not own them, so you cannot sell or do anything with them.
How RSUs Work, Step by Step
The typical structure of the RSU lifecycle is as follows:
- Grant date: Your employer awards you a specific number of shares. You do not own them yet. This is just a promise to give you the shares at a specific time in the future.
- Vesting schedule: A vesting schedule determines when you will receive the shares. The most common vesting I see in tech is four years with a one-year cliff, meaning nothing vests during the first year, a portion vests at the one-year mark, and the rest vests gradually after that.
- Vesting date: This is the date the shares become officially yours (yay!). If no other restriction exists (like a blackout trading period), you now have full power to decide what to do with them. From a tax perspective, this is one of the most important dates: the IRS treats this as taxable compensation to you on the day you receive them. So, yes, you now owe taxes.
I wrote a full post about RSU tax withholding and what to watch out for here. - Post-vesting date: 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 the day the shares vest.
What RSUs Actually Mean for Your Finances
RSUs can be a great wealth generator if used wisely. They are not a bonus, they are part of your compensation for showing up and doing a good job.
I find that many women I work with don’t treat RSUs as part of their cash flow and regular compensation when they earn the shares, mostly because it is not cash being deposited to your bank account, so it doesn’t feel like available cash flow. But it is.
RSUs can make daily cash flow feel more complicated. This is also one of the reasons equity compensation planning matters, understanding what you have and building a clear strategy around it can change the trajectory of your finances.
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.
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.
