The Dos and Don’ts of Restricted Stock Units

Restricted Stock Units (RSUs) are a form of compensation that is becoming increasingly popular with employers. If you are fortunate enough to receive them as part of your compensation package, it’s essential to understand how they work and what you should do (or not do) with them.

Dos:

1. Understand the Vesting Schedule
RSUs don’t vest immediately, so it’s essential to understand the specific vesting schedule applicable to you. This will help you know when you can sell the stock and when you’re eligible for dividend payments, if any.

2. Know the Tax Implications
RSUs are subject to taxation, and the tax laws that apply to them are complex. If you don’t understand them, it can lead to unpleasant surprises later on. Consult with your accountant or financial advisor to avoid potential tax liabilities.

3. Diversify Your Investments
RSUs represent a significant proportion of your total compensation, so it’s essential not to lock yourself into a single company’s stock. Consider diversifying your investments by selling some of your RSUs and using the proceeds to invest in other stocks or mutual funds.

Don’ts:

1. Don’t Hold On Too Long
Keeping your RSUs for too long can be risky, as the stock’s value may decline before you get a chance to sell. It’s important to strike a balance between holding on and diversifying your investments.

2. Don’t Ignore the Expiration Date
RSUs typically expire after a specific time, so it’s important to keep track of the deadline and take the necessary action before it’s too late.

3. Don’t Forget to Report Your Income
RSUs are considered part of your income, so it’s essential to include them in your annual tax return. Failure to do so can result in penalties and interest charges.

In conclusion, RSUs can be a valuable component of your compensation package, but you need to understand how they work, the tax implications, and how to diversify your investments. By following these dos and don’ts, you can maximize the benefits of RSUs and avoid unnecessary risks.

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