UPDATES! 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. See a related FAQ that covers potential ways to reduce your income and taxes if the vesting could push you into a higher tax bracket.
- Your cash requirements and upcoming life events, along with other financial-planning factors, including: concentration in company stock and diversification needs; dividends paid on your stock; and alternative investments. See also an article on this website with a checklist of general ideas for financial planning with restricted stock and RSUs.
- 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 shares at vesting and systematically selling them over time or at set stock prices, perhaps using a Rule 10b5-1 trading plan, 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.
Ready for more in-depth planning insights with restricted stock/RSUs? See a pair of articles elsewhere on this website written by experienced financial planners with special expertise in this area:
- Sell Or Hold RSU Shares At Vesting? 3 Approaches To Consider
- Financial Planning With Restricted Stock Units: 3 Key Questions
WEBINAR: When you're ready, get in-depth planning expertise in our popular webinar Restricted Stock & RSU Financial Planning: Advanced Bootcamp, featuring a panel of financial advisors. The webinar is available on demand, along with others at the myStockOptions webinar channel.