About Restricted Stock Options

So many employers now offer RSUs as an incentive for employees to remain on the job, but so many employees don’t really understand them. A friend of Blue Spark Capital Advisors asked us recently, “Should I sell my vested options or wait until I leave the company or retire?” The big question that will help you answer that is this: If you received a taxable cash bonus, would you turn around and use that money to buy shares of your company? Maybe you would, but most would at least want to analyze how that choice would fit in with their overall investment strategy. More about Restricted Stock Options here.

These options, called RSUs, are basically bonus plans that grant not actual stock but the right to receive an award based on the value of the stock. They are not taxable when granted but they are when they vest, as that’s when you get the value of the share not just the promise. Companies withhold some or all of that tax at vesting – check your pay statements.

Employees can also opt to use a “Section 83(b)” election, essentially choosing to pay ordinary income tax upon the RSU grant. Tax paid at the sale of the RSU then would be at a lower capital gain rate (but there could also be capital losses). A Section 83(b) election is really a gamble, because it carries risk. If an employee makes the election and pays income tax, but the stock restrictions never lapse, then she would not get a refund on taxes already paid nor would she get the shares.

Blue Spark Capital Advisors

We're a fee-only Registered Investment Advisory and financial planning firm based in New York City and the Berkshires.

We specialize in working with women after divorce, death of a spouse, or other life transitions such as retirement or job change. We provide financial planning and investment management services.

We believe in a holistic approach. Movement in each piece of your financial plan impacts the others, so we consider your entire picture.

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130 West 19th Street (8th Floor)
New York, N.Y. 10011
(212) 537-3899

93 Church Street
Lenox, Mass. 01240
(413) 551-7000

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"Integrity without knowledge is weak and useless, and knowledge without integrity is dangerous and dreadful."
– Samuel Johnson (1709-1784)
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