Restricted Stock Units: Proactive Strategies for Tech Professionals

Restricted Stock Units (RSUs) are a common form of income for employees at large tech companies like Apple, Meta, and Google. In fact, Alphabet Inc. has its own variation called Google Stock Units (GSUs). While these equity awards are a valuable part of compensation, their tax implications can catch even seasoned professionals off guard. Without proper planning, the benefits of these stock awards may come with unexpected financial consequences.

3 Planning Strategies for Restricted Stock Units (RSUs)

Here are a few proactive strategies to help you minimize tax liability and manage risk effectively if you’ve been awarded RSUs or GSUs.

1. Grants and Vesting: Create an Inventory

Grants of an RSU or GSU have no immediate tax consequences. However, once the shares vest, the game changes. Upon vesting (or the lapse of restrictions), you officially receive the shares, and the stock’s fair market value at the vesting date is taxed as ordinary income. This is true even if you don’t sell the shares right away.

To manage your equity compensation, start by creating an inventory of your awards. Knowing your vesting schedule and the associated tax obligations can help you plan your cash flow during the year and avoid surprises when tax time rolls around.

2. Withholding: Increase as Needed

RSUs and GSUs are treated as supplemental income and subject to a default federal withholding rate of 22%. While this amount might seem like enough, it falls significantly short if you’re in the top federal tax bracket of 37%.

To avoid an unpleasant surprise come tax season, consider increasing your withholding rate to match your actual tax bracket. For those in the highest tax brackets, that means bumping up federal withholding to 37% and adjusting state withholding accordingly (up to 13% if you’re in California). This step can save you from scrambling to cover a significant tax bill later.

3. Concentration Risk: Manage It Proactively

Over time, as your company’s stock price appreciates and you accumulate more shares, a substantial portion of your portfolio may become tied up in one company. This concentration can expose you to significant risk, especially if the stock price takes a sudden dip or you are no longer working for the company (I see you, #Xooglers)—and are removed from the day-to-day news.

The solution? Diversification. Start by identifying an ideal target for how much of your wealth you want tied to company stock. Then, strategically sell shares with high cost basis and low unrealized gains to minimize the tax impact of diversifying. This approach allows you to reduce exposure to a single stock and spread risk across thousands of companies.

Take Control of Your Financial Future

It’s easy to delay planning when you’re immersed in work and watching your company’s stock soar. However, analysis paralysis can lead to missed opportunities or unintended risks. By creating an inventory of your RSU/GSU grants, ensuring adequate withholding, and managing stock concentration risk, you can maximize your equity compensation while protecting your financial future.

Need guidance on how to implement these strategies? Schedule a complimentary consultation to determine if we can add value to your financial goals.

About the Author 

Joyce L. Franklin CPA, CFP, is a Partner and Senior Wealth Advisor at Mission Wealth. She advises employees and executives in the tech and human resources fields on wealth management, tax, and financial planning. She designs, implements, and monitors financial plans that coordinate each client’s goals, values, and risk tolerance.