How to Sell Restricted Stock Units (RSUs)

Restricted stock units (RSUs) are a type of equity compensation that some employers offer as part of their overall benefits package. They represent a promise to grant you company shares once certain requirements are met, such as working for the company for a set period of time or meeting specific performance goals. When those conditions are satisfied, your RSUs vest, giving you full ownership of the shares and the ability to sell them just like any other stock. Here’s how they work and what to expect.

If you need help selling RSUs, or advice on any other type of investment, a financial advisor can walk you through specific options for your portfolio.

What Are Restricted Stock Units?

Restricted stock units are a benefit known as equity compensation. Through equity compensation, an employee receives shares of company stock as part of their compensation package.

A company might offer equity compensation for a number of reasons. Ideally it aligns the employee’s incentives with that of the firm, so that the employee will be personally enriched if the company succeeds. Depending on the nature of the benefits this can also be used as a retention package, incentivizing people to stay with the firm for several years so that they can collect the full value of their benefits.

There are several ways of distributing equity compensation. The two most common are stock options and restricted stock units (RSUs).

With an RSU, you are offered a package of shares in the company that you will receive based on certain conditions. Until these conditions are met, you have no rights to these shares. They are an offer only. Once the conditions are met, you receive full ownership of these shares.

How Are Restricted Stock Units Distributed

There are two main kinds of restricted stock units: Single trigger and double trigger. With a single trigger restricted stock unit, you receive the shares once a single condition has been met. With a double trigger restricted stock unit, you receive your shares once all of multiple conditions have been met.

The most common condition for a restricted stock unit is a “vesting schedule.” This means that you receive shares after you have worked for the company for a certain amount of time. It’s not uncommon for a company to have tiered vesting schedules, in which you receive shares in stages over time. For example, let’s assume you have equity compensation with the following schedule:

1,000 Shares of restricted stock units
Vesting schedule of 10% per year of employment

Let’s say you have single trigger restricted stock units. This means you don’t receive anything at first. Then, every year you stay with the company, you get 100 shares of stock (10% of your overall 1,000 shares). After 10 years, all your stock vests, and you’ll own all 1,000 shares.

It’s also fairly common for companies to set performance or liquidity triggers on the restricted stock units. For example, a startup company might have an IPO trigger. With this condition, an employee would not receive their shares until and unless the company issues its initial public offering. Other companies might have price triggers, meaning that an employee would not receive their shares until the company hits a certain market value, event triggers or other specific metrics.

For example, say you have equity compensation with the following schedule:

1,000 shares of restricted stock units
Vesting schedule of five years
Subject to acquisition by ABC Co.

Here, you would have double trigger restricted stock units. You can’t receive your shares until you’ve worked for the company for five years. You also can’t receive your shares until and unless ABC Co. acquires the company. Once both of those conditions have been met, in any order, you’ll receive 1,000 shares of company stock.

Value and Taxes for Restricted Stock Units

A woman researching how restricted stock units (RSUs) are distributed.

When shares of restricted stock units vest, you receive these shares in full. Unlike with stock options you don’t have to pay for these shares.

Shares of restricted stock units are considered compensation. And, as a result, are added to your taxable income for the year in which you receive them. The value of these shares is determined based on their fair market value at the time they are distributed. For publicly traded stocks, fair market value is typically set based on share price. When it comes to private stock, fair market value is usually based on a number of factors, typically including the number of shares in circulation, how much investors paid for those shares and any assessed value of the company.

For example, take our case above with the single trigger RSUs. In your first 12 months, you would have no shares or salable rights to those shares at all. At the one year mark, you would receive 100 shares of stock. you would own these shares in full. Your company distributes those shares on January 1, when the stock is publicly trading for $15 per share. Your shares are valued at $1,500 ($15 per share * 100 shares), which will be added to your taxable income for the year.

How You Can Sell Restricted Stock Units

Selling restricted stock units depends on whether your company is publicly or privately traded.

Once you have met the conditions of a restricted stock unit package, you receive those shares entirely. They are yours and you can buy or sell them subject to the same conditions as any other shares of stock.

With a publicly traded company, this means that you can freely sell your shares as you would any other stock in your portfolio. The timing of this is entirely based on your personal judgment about the value of these shares in your portfolio, although it’s common for employees to sell at least some of their shares right away to cover the tax bill.

Private companies are more difficult because their shares are not freely traded, nor are they publicly valued. Instead, private shares are usually valued based on the company’s last round of investment. Individuals also typically face trading restrictions on private shares, since you must be an accredited investor to freely buy and sell this asset class.

In most cases, the best way to sell private shares is to wait for your company to issue an IPO. Alternatively, it’s common for companies to buy back shares from their employees, creating what is effectively an internal market for the company’s stock. Beyond that, you may need to consult with a financial professional to determine if and how you can legally sell these shares to interested private investors.

How RSUs Compare to Stock Options, RSAs and ESPPs

Restricted stock units are just one form of equity compensation, and they differ in several important ways from other common offerings like stock options, restricted stock awards (RSAs) and employee stock purchase plans (ESPPs).

Stock options give you the right to buy company shares at a set price, known as the strike price. If the market price rises above your strike price, you can exercise your options and capture the difference as profit. Options can offer significant upside, but they require you to purchase the shares, and they may expire worthless if the stock never rises above the strike price.
Restricted stock awards (RSAs) are similar to RSUs in that you receive actual shares of stock, but with one major distinction: You take ownership of RSA shares up front, even though they remain subject to forfeiture until they vest. Because you own the shares immediately, RSAs often allow for an 83(b) election, which lets you pay taxes on the shares when they are granted rather than when they vest. This can be beneficial if you expect the stock price to rise significantly.
Employee stock purchase plans (ESPPs) offer eligible employees the opportunity to buy company stock at a discount, often through payroll deductions. ESPPs typically do not involve vesting schedules, and the discount itself can be a valuable benefit. However, unlike RSUs, ESPP participation requires you to use your own after-tax dollars to purchase shares.

Bottom Line

An employee deciding to sell her vested restricted stock units (RSUs).

Once your restricted stock units vest and you receive the actual shares, you can generally sell them under the same rules that apply to any other stock you own. If your employer is publicly traded, you can sell the shares directly through your brokerage account, subject to any company-specific trading windows or blackout periods. If the company is privately held, selling can be more complicated. You may need to rely on company buyback programs, tender offers or work with a financial professional to determine whether a legal sale to private investors is possible.

Investment Planning Tips

Stock options are another common form of equity compensation. Employees purchase shares at a set price instead of receiving them directly. While this can be more expensive up front, it could also pay off significantly in the long run.
A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.