If RSUs are part of your compensation, or you are weighing an offer that includes them, understanding how they work now will save you from surprises later, both in your net worth and your tax bill. This guide covers what RSUs are, how vesting works, whether you can negotiate them, and what to do once they vest.
Key Takeaways
- RSUs are company shares granted to you as compensation, delivered once a vesting schedule is complete.
- Once vested, RSUs are yours: no purchase is required, and vested shares are not forfeited if you leave.
- RSUs are most common at established, publicly traded tech companies, and they are often negotiable.
- The full tax treatment at vesting and sale is covered on our companion RSU and stock option tax guide.
District Capital Management is a fee-only, fiduciary financial planning firm based in Washington, DC, founded in 2013 by Alvin Carlos, CFP®, CFA. We work with tech professionals across the DMV area and nationwide to manage RSUs as part of a broader financial plan.
What Are Restricted Stock Units (RSUs)?
RSUs are a form of compensation in which a company grants you company shares that vest over time rather than arriving all at once. During the vesting period, the stock cannot be sold and does not fully belong to you. Once vested, the shares are assigned a fair market value, become taxable compensation, and can be sold at any time. Companies that commonly grant RSUs include Adobe, Amazon, Google, Meta, and Microsoft.
How Does an RSU Work?
An RSU works as a retention and incentive tool: the company releases a set number of shares to you on a vesting schedule, and if the stock price rises, the value of your unvested RSUs rises with it. For example, John receives an offer that includes 1,000 RSUs releasing 200 shares per year over five years. As each 200-share tranche vests, the fair market value of those shares at vesting is added to John’s taxable income for that year. As shares vest, John can sell them, keep them, or do some of each.
Why Do Companies Give Restricted Stock Units?
Companies grant RSUs because they serve as compensation and retention at the same time. Employees who hold company shares have a more direct stake in the company’s growth, and unvested shares give them a reason to stay until vesting. Releasing shares gradually on a schedule also limits dilution compared with issuing them all at once.
What Are the Advantages and Disadvantages of RSUs?
The main advantage of RSUs is that they let you share directly in the company’s growth with a simple structure: once vested and outside any blackout period, the shares can be sold at any time. The main disadvantage is that unvested RSUs are not guaranteed. If you leave or are let go before shares vest, those shares are forfeited. And because RSUs are taxed as ordinary income at vesting regardless of what the stock does next, a price drop after vesting does not reduce the tax already owed on that vested value.
Can I Negotiate an RSU?
Yes, RSUs are often negotiable as part of your overall compensation, especially at established, publicly traded companies. Many candidates negotiate the size or the vesting terms of an RSU grant, particularly when a company cannot move on base salary. If you are an Amazon employee in your 30s or 40s, see our detailed guide on Amazon RSU strategies for company-specific tax and wealth-building tips.
How Are RSUs Taxed?
RSUs are taxed as ordinary income at vesting, based on the fair market value of the shares on the vesting date, and any gain after that is taxed as a capital gain or loss when you sell. That is the short version. The full mechanics, including withholding, AMT interactions for employees who also hold stock options, and cost-basis pitfalls, live on our RSU and stock option tax guide, which also compares RSU taxation side by side with non-qualified and incentive stock options.
How Do RSU Vesting Periods and Vesting Schedules Work?
The period between the grant date and the vesting date is the vesting period, and depending on your company’s plan, RSUs can vest monthly, quarterly, or annually over several years. Once vested, shares generally cannot be taken back even if you later leave. RSU vesting schedules usually follow one of three patterns:
- Graded vesting: shares vest in equal installments over a set period. A 1,000-share grant vesting 25% annually releases 250 shares each year for four years.
- Cliff vesting: no shares vest until a set date, at which point a large percentage (or all) of the grant vests at once.
- Hybrid vesting: a combination, where a percentage vests after an initial cliff and the rest vests gradually afterward.
What Is a Wash Sale, and Can Selling RSUs Trigger One?
A wash sale happens when you sell a security at a loss and buy a substantially identical security within 30 days before or after the sale, which disallows the tax loss. For RSU holders, this most often comes up when you sell shares at a loss and then acquire more of the same company’s stock, for example by exercising options or vesting a new tranche, inside that 30-day window. When a wash sale occurs, the disallowed loss is generally added to the cost basis of the newly acquired shares, which can reduce the tax impact when those shares are eventually sold. The IRS explains the rule in Publication 550. It is worth consulting a tax professional or fee-only advisor if you think a wash sale may apply to you.
What Should I Do With My Restricted Stock Units?
Once RSUs vest, you own the shares outright, the same as any other holding in a brokerage account, so the real question is concentration. The pattern we see most with RSU holders is treating vested shares as if they were free money and letting them pile up, which quietly turns into an oversized bet on a single employer whose stock already pays your salary. If your RSUs represent a large share of your net worth, selling some to diversify is worth considering as part of a broader plan. Holding a high concentration of any single stock generally carries more risk than a diversified portfolio.
How Do RSUs Compare to Stock Options?
RSUs and stock options are both equity compensation, but they carry different risk levels and are taxed on different timelines. If you are comparing an RSU-heavy offer against one weighted toward options, or deciding what to do with a mix of both, see our full comparison in RSUs vs. stock options: which is better?
It is often best to speak to a financial advisor before making any major moves like selling RSUs. You don’t want to get hit with a surprise tax bill, or sell stock that you would have been better keeping. A professional can help you determine the right move for your situation.
Get Expert Advice on Your RSUs
At District Capital Management, we help clients build a tax-efficient strategy around their RSUs as part of a comprehensive financial plan.
Schedule a free discovery call to see how our financial planners can help.
Frequently Asked Questions
Yes. RSUs are taxed as ordinary income based on the fair market value of the shares on the vesting date, and any further gain or loss when you sell is taxed as a capital gain or loss. See our full RSU tax guide for the complete breakdown.
No. Once RSUs vest, you own the shares, and your employer generally cannot take back shares that have already vested, even if you later leave.
You lose all unvested RSU shares when you quit. Vested shares already in your brokerage account are yours to keep.
Yes. RSUs are often negotiable, especially at publicly traded companies, particularly when a prospective employer cannot offer more base salary.
RSUs are shares delivered to you outright once they vest, while stock options give you the right to buy shares at a fixed price. See our full comparison at RSUs vs. stock options.
It depends on your concentration in company stock, your cash needs, and your broader plan. Many employees sell some or all of their vested RSUs to avoid overconcentration in a single company. District Capital Management helps clients build a plan around this decision.
Last updated: August 2026
Alvin Carlos, CFP®, CFA is a fee-only financial planner, in Washington, D.C. He has a Master’s degree in International Relations from SAIS-Johns Hopkins. Alvin is the founder of District Capital, a financial planning firm designed to help professionals in their 30s and 40s maximize their money and retire by 55, through holistic financial planning and research-driven investing. Schedule a free discovery call today.
