Should You Sell RSUs Immediately?
Receiving equity compensation like Restricted Stock Units (RSUs) can be an exhilarating experience. Because their value increases and decreases along with your company share prices, the fluctuations can be a wild ride and complicate the process of deciding whether or not to sell your RSUs right away or to leave them be.
The consequences of selling RSUs immediately after vest will vary from person to person and there are important factors to consider before making that decision. Although most blogs and advisors recommend selling everything immediately after vest, it’s important to carefully weigh these factors for yourself. The best answer isn’t always to “sell all” or “sell none.” Often there’s room for middle ground.
The purpose of this article is to help you answer the question of if you should sell your RSUs right away.
We’ll do this by discussing common reasons why people sell RSUs immediately after vest, why people choose not to sell immediately after vest, and 6 factors you should consider to help you make the decision that will work best for you.
The Main Reasons for Selling RSUs Immediately
Individuals may have different motivations for selling their RSUs, but in our experience we typically see the following three reason the most.
#1 - The Tax Man Cometh
The primary reason people decide to sell their RSUs right away is because when RSUs vest, they become taxable. At the moment you receive RSUs, it is treated just as if you are receiving cash of the exact same value.
Which leads to this question: If you were to receive cash instead of RSUs, would you choose to invest it all in your company’s stock? For most people, the answer is “Probably not.”
Although it’s common practice for companies to withhold a portion of their employees’ RSU shares at vest to ensure that the tax liability is at least partially paid, those withholdings are usually not enough. This is why people often choose to sell all their RSUs at vest and set aside the extra cash for taxes.
We’ve written an article on how to determine your Tax Rate for RSUs. You may find it helpful in getting a better sense of the taxes you’ll owe from your RSUs vesting.
#2 - There’s a Desire to Diversify
Another reason people sell their RSUs immediately is that they don’t want to be too invested in the company they work for.
This is certainly a valid reason. We’ve seen lots of people at big tech companies who have major regrets for not selling more when the stock prices were higher. Make a random list of tech companies and you’ll find that most of them performed especially poorly in 2022-2023. Maintaining a well-diversified investment portfolio has never been easier and is a sound, simple, and proven investment approach.
If employees had known that a downturn was coming, they’d likely have sold and reinvested in something with less downside risk. That’s the whole point of diversifying. Because you can’t know with certainty what’s going to happen at your one specific company, it may be the wiser/safer move to spread out the risk and then live with your decision to do that.
Our two favorite books on simple investing strategy are “The Simple Path to Wealth” and “The Little Book of Common Sense Investing.” The authors of these books advise that if you stick to investing in a diversified way, you can expect solid returns without risking it all on just one company (paid links.)
We’ve written articles on “How Much Company Stock is Too Much” and “Investment Tips for Techies.” You’re welcome to check them both out.
#3 - More RSUs Will Be Granted in the Future
Another reason people decide to sell their RSUs right away is because they know that they’ll be receiving more RSUs in the future.
Once you reach a certain level in your career, or the company you work for has set the precedent, it’s very common for people to receive a new grant of RSUs every single year. The value of this recurring grant usually depends on your status at the company, how the company is doing financially, the type of work you do, and how hard they’re trying to motivate you to stay with them.
If you know that you’re going to be receiving more RSUs in the future, this means that as RSUs continue to vest, you’ll be able to benefit from any increase that happens in the company’s stock price. Knowing this makes it much easier to sell RSUs right away because you can anticipate that more are on the way.
The Main Reasons for Not Selling RSUs Immediately
We’ve gone over the three main reasons people choose to sell RSUs immediately, now let’s dive into the three most common reasons we see people choose not to.
#1 - Trading Windows Don’t Allow It
The most common reason people don’t sell their RSUs right away is because their company requires that they only sell their company stock during approved windows of time (also known as “Trading Windows”).
Companies usually have month-long trading windows a full day or two after they release their quarterly financial data to the public. It’s during this window that employees can freely buy or sell company stock.
Here’s a rough example of what your tradeable days might look like compared to the days you’re not able to trade.
As you can see, if you had RSUs that vest anytime you’re not able to trade, you literally aren’t able to sell your RSUs right away. You must instead wait from the vest date until the time that the company will allow you to sell shares.
Now for two quick important details on trading windows with your RSUs.
Your company should withhold shares for you to cover taxes immediately at vest. That transaction is not impacted by your trading window.
Another important detail, especially for those of you who want to sell RSUs immediately after vest, is that 10b5-1 plans can enable you to trade outside of trading windows. We’ve written about what 10b5-1 plans are and why you might want one, but this is one of the major perks of establishing a 10b5-1 plan.
#2 - You Own Double-trigger RSUs
So far in our discussion we’ve assumed that the RSUs in question are RSUs granted by a public company; however, things are much different if you work for a private company.
If you’ve received RSUs at a private company, it’s very likely that you’ve received what are considered Double-trigger RSUs.
In addition to meeting the typical “you must work here for this long” requirement before RSUs vest and become yours, some companies also require that you stay employed at the company until there’s either an IPO or the company gets acquired.
If you fall into this group, it’s possible that you have plenty of RSUs that have met the time requirement but are just missing the “liquidity event” condition. Unfortunately, you will not be able to sell your RSUs until all vesting conditions have been met.
#3 - Desire For More Upside
The last reason we see people decide not to sell RSUs right away is that they’re betting that their company will be worth a lot more in the future.
It’s true that if you’re lucky enough to work for the right company, you can strike gold and get far better returns than if you had diversified. But the flip side is that if the company does really poorly, you can suffer a devastating financial blow and have to live with the consequences of that wager.
The problem is that no one can predict the future with absolute certainty. If, for example, you received Tesla, Nvidia, or Advanced Micro Devices (AMD) RSUs 5 years ago, even with the big price drops in 2022/2023, you’d likely still be very happy with the decision to hold and not sell.
More recently though, employees at companies like Rivian, Shopify, Snowflake, and the majority of recently IPOed companies are experiencing regrets about not selling right away.
Only you can determine how much risk you’re comfortable taking. As you’re making this determination, there are several factors that you should take into consideration (and we’ll cover these factors next).
Factors to Help Decide Whether to Sell RSUs Immediately or Not
#1 - You Don’t Have Investments or Savings Outside of Your Company
The first factor you’ll want to consider when determining whether or not you want to sell your RSUs right away is how your financial situation looks outside of your company RSUs.
If you don’t have an emergency fund built up or you don’t have an investment account that’s diversified in more than one single stock, it probably makes sense to sell the RSUs right after they vest to be sure that you have enough cash to fund those other areas.
The cash from selling recently vested RSUs can provide a valuable opportunity to put money where you need it most and to begin building wealth outside of just the company that you work for.
#2 - You Get Sick Watching Your Company's Stock Price Rise and Fall
The second factor to consider when deciding whether or not to sell your RSUs right away, is how well you stomach the ups and downs of stock prices.
Most of us are all too familiar with the sick feeling we experience in our guts when our stock prices fall. Although intellectually we may know that it’s normal for stocks to rise and fall, we still become hyper-focused when our stock values begin to shift downward. (This tendency to give greater attention to our losses is a form of cognitive bias called Loss Aversion.)
What makes owning RSUs especially tough is that while you are waiting for them to vest, all you can do is watch their price rise and fall. There’s nothing you can do until your RSUs finally go from unvested to vested.
If watching your company's stock price becomes unhealthy and you find yourself stressing or getting nauseous as the price drops, it might be worth it to save your health and sanity by selling your RSUs right after they vest.
#3 - You’re in the 24% to 34% Tax Bracket
If you are in the 24%, 32%, or 34% tax bracket, there’s a good chance that you should sell at least some of your RSUs immediately after vest.
There are two reasons for this: The first reason is that when RSUs vest, they are taxable based on the number of RSUs that vest and the share price at the time of vesting. Even if the stock price goes down after vest, you will still owe taxes based on the value at the time of vest.
The second reason is that most companies will withhold shares for you at 22% so if you are actually in a higher tax bracket that means that when taxes are due, you will owe the difference between what your actual tax rate is and that 22%. As previously mentioned, we’ve written an article about how to determine your RSU tax rate so if this interests you, you can read more about how to calculate this yourself.
The situation you want to avoid is having your RSUs vest and incurring taxes on those vested RSUs, then not selling them immediately and experiencing a dramatic drop in your company’s share price. If you don’t have enough cash to pay the taxes you owe, it can really put you in a serious financial bind.
This becomes especially important for people who hold RSUs after an IPO since it is typical for companies to experience a lot more volatility and movement in the months following an IPO.
#4 - Your Company Just Finished Its IPO Lockup
Newly IPOed companies seem to be in the news a lot and every earnings call seems to be scrutinized more harshly. Because of this, (as noted above) most newly IPOed companies experience greater volatility and movement than companies that have been public for decades.
Depending on how your RSUs are structured, it’s very likely that you’re going to owe some taxes from double-trigger RSUs. And usually in the year of an IPO, you’ll have more taxes because all of the RSUs you’ve had waiting for this liquidity event are finally going to vest.
Knowing that your RSUs will be subject to more price swings and knowing that you are going to owe some taxes, you may find it best to sell after lockup to ensure you can cover your tax bill. (And avoiding some of the stress/worry about stock prices provides an added mental health benefit.)
#5 - You Feel Passionate About Being Invested in Your Company’s Stock
If you really love the company you work for, believe in its vision, and think they’re a good investment long-term, we’ll say you’re a little biased, but that's okay.
If you have your financial ducks in a row and feel you feel comfortable taking on additional risk by holding onto your RSUs instead of selling them right away, that’s certainly your prerogative. Just recognize that holding onto Applovin or Palantir stock is far different than holding onto Apple or Amazon stock.
We’d urge caution if you don’t have a solid emergency fund, have credit card debt, aren’t contributing to your 401(k), and/or feel your personal finances aren’t under control. We’d counsel you to consider selling your RSUs right away and put the cash toward those other important personal finance priorities.
#6 - You Receive Annual Refresher Grants of RSUs
If you can count on a new grant of RSUs every year, that gives you more flexibility to do what you feel like doing. You’ll be able to benefit from any stock appreciation, but you’ll also have plenty of opportunities to diversify.
This is one reason we recommend pushing for RSUs to become part of your compensation package. Some people prefer to receive cash bonuses, but we’re big fans of pushing for both.
Final Thoughts on Selling RSUs Immediately
We tend to lean towards selling a good portion of your RSUs immediately after vest and diversifying the proceeds into other investments. Of course, how you define that “good portion” depends on your individual situation.
We understand that selling RSUs can be a hard thing to do if you’re new to it. In Etrade, Carta, or whatever platform your company uses, it’s often nerve-wracking to select your company shares and click the “Sell” button. Selling them sometimes feels like you’re giving up something that you earned. Instead, we’d suggest reframing it as similar to cashing a paycheck. And once you have the cash, you’re then free to use it to accomplish other important goals.
Please let us know if you have any questions about selling your RSUs. We’re happy to provide our thoughts and give additional insight. As always, thanks for reading. If there are other topics you’d like to see us write about, please let us know.