The 5 Biggest Mistakes People Make with RSUs (and How to Fix Them)
Restricted Stock Units (RSUs) can be a fantastic wealth-building tool, but they also come with pitfalls that can trip up even the most financially savvy. If you have RSUs as part of your compensation, avoiding these five common mistakes can save you from tax surprises, financial instability, and concentration risk. Here’s what to watch out for — and how to fix them.
Restricted Stock Units (RSUs) can be a fantastic wealth-building tool, but they also come with pitfalls that can trip up even the most financially savvy. If you have RSUs as part of your compensation, avoiding these five common mistakes can save you from tax surprises, financial instability, and concentration risk. Here’s what to watch out for—and how to fix them.
1. Not Knowing Your Vesting Schedule
Many people assume their RSUs will just “show up” when they vest, but failing to track your vesting schedule can lead to missed planning opportunities.
Fix It: Grab your grant documents and build out a simple spreadsheet with your vesting dates. Even better, set a reminder on your phone for each vesting date. Why? Because when your shares vest, you may need to take action—whether that’s selling some for taxes, rebalancing your portfolio, or making sure your overall strategy stays on track.
2. Misunderstanding Taxation
RSUs are taxed as supplemental income when they vest. For most employees, companies withhold 22% for federal taxes. But if your income is high enough to push you into a 32% or 37% tax bracket, you’re likely under-withholding—and that could mean a surprise tax bill or worse penalties come April.
Fix It: Run a projection to see if your RSU withholdings match your actual tax bracket. If you’re under-withheld, you may need to make estimated tax payments, adjust your withholding on your RSUs, or adjust your W-4.
3. Lack of Diversification
When RSUs vest, you might be tempted to hold onto them, especially if your company is performing well. But keeping too much of your wealth in one stock creates concentration risk—meaning a downturn in your company’s stock could significantly impact your financial well-being.
Fix It: Have a strategy for selling your RSUs. Decide in advance what percentage you’ll sell upon vesting and reinvest into a diversified portfolio. Remember, putting all your eggs in one basket isn’t a great idea when it comes to investing.
4. Not Considering Unvested RSUs if You Change Jobs
Unvested RSUs don’t travel with you if you leave your company. This means that if you’re considering a job switch, you might be walking away from a significant portion of your compensation.
Fix It: Before making any career moves, check how many RSUs are unvested and when they’re set to vest. If a large vesting date is coming up, it might make sense to stay a little longer. Also, negotiate your new compensation package with RSU loss in mind—some companies may offer a signing bonus or equity grants to make up for it.
5. Relying On RSUs to Cover Fixed Expenses
Since RSU vesting depends on your employment and company stock performance, relying on them for fixed expenses (like mortgage payments or rent) can be risky. If your company’s stock declines, your compensation could take a hit—making it harder to meet those financial obligations.
Fix It: Treat RSUs as a bonus, not a guaranteed paycheck. If you want to incorporate them into your cash flow, use them for flexible expenses or investments rather than relying on them to cover essential bills. This way, you won’t be caught off guard if your stock takes a dip.
Final Thoughts
RSUs can be a great thing for wealth building—if managed correctly. By understanding your vesting schedule, planning for taxes, diversifying, evaluating unvested shares before job changes, and not relying on RSUs for fixed expenses, you’ll be in a much stronger financial position.
Need help navigating your RSU strategy? Book an Intro and let’s chat about how to integrate them into your broader financial plan.