My restricted stock/RSUs will vest soon. Should I sell the shares at vesting or hold them?
When restricted stock, restricted stock units, or performance shares vest, whether you sell or hold the shares depends on various factors. Some of these factors, especially personal ones, are under your control, while others stem from your company's plan or the tax rules.
Factors That Affect Your Decision
- Taxes. Shares can be a source of the proceeds needed to pay taxes at vesting. Proceeds for tax withholding can come from net share settlement or a sale of shares.
- Tax planning. Whether you hold the shares and for how long will affect your capital gains tax at sale. Any holding period after vesting does not affect the amount of income tax due for the value of the shares at vesting.
- Your cash needs, upcoming life events, and other financial-planning factors, including diversification, dividends paid on your stock, and alternative investments.
- Whether your company is publicly traded or privately held. At public companies, be aware of blackouts when you can't trade or stock ownership/retention guidelines that require you to keep a certain amount of company stock. In a privately held company, you will not be able to sell the shares immediately at vesting because of restrictions that are likely to exist in your grant and/or because of the SEC rules on resales.
Calculations in the Restricted Stock & RSUs Comparison Modeling Tool on myStockOptions.com can help you decide. If you are not comfortable with making these decisions on your own, discuss strategies with a financial advisor. This is particularly helpful if you are thinking about holding the stock at vesting and systematically selling shares over time or at set price points, or if company shares represent at least 10% of your net worth.
Alert: Before the restriction lapses and the shares are released, you should confirm that you have certified your tax status on IRS Form W-9 or Form W-8BEN for the account with your brokerage firm or transfer agent. If it does not have this form, you will be subject to backup withholding on the sales proceeds.
See an article elsewhere on this website that presents questions to ask yourself that can help you identify your most comfortable strategy for restricted stock and RSUs.