RSUs, Stock Options & ESPPs: A Financial Planning Guide for Women

If a meaningful part of your compensation comes in the form of company stock, it can quickly become one of the most important parts of your financial life. It can also become one of the hardest parts to make decisions around.

Should you sell your RSUs when they vest or hold them? Exercise stock options now or wait? Participate in your ESPP?  How much company stock is too much? And what should you do with the money if you decide to sell?

When I help clients think through these decisions, I’m not looking at the stock by itself. I’m looking at how much company stock they own, what else they’re invested in, what taxes may be coming, and what they want the money to help them accomplish.

Those are the questions that are more useful than simply understanding how your equity plan works.

What Are RSUs?

Restricted stock units, or RSUs, are a common form of equity compensation. Your employer promises to give you shares of company stock once certain conditions are met, usually after you stay with the company for a specified period of time.

For most employees, the important tax event happens when the RSUs vest and the shares are delivered to you. The value of the shares is generally treated as compensation and included in your taxable wages.

If you continue holding the stock after that, any additional increase or decrease in value generally affects the capital gain or loss when you eventually sell.

That means there are really two separate decisions:

What happens when the RSUs vest?
What do you want to do with the shares after they become yours?



Should You Sell Your RSUs When They Vest?

There is no rule that says you should always sell your RSUs as soon as they vest. And there is also no rule that says holding them is the better choice.

When I’m looking at this with a client, one of the first questions I’ll ask is:

If your employer had paid you the same amount in cash, would you use that cash to buy shares of your company today?

If the answer is no, that’s worth paying attention to.  From there, I want to understand how much company stock you already own, what else you’re invested in, whether more shares are scheduled to vest, and what other things you could be doing with the money.



For example, maybe you’re trying to save for a home, increase your retirement contributions, build investments outside of your company stock, or simply reduce how much of your net worth is tied to your employer.

Selling some or all of your vested RSUs doesn’t mean you think your company is a bad investment. You may simply decide that you already have enough of your financial life tied to one company.

How Much Company Stock Is Too Much?

There isn’t one percentage of company stock that is right for everyone.

When I look at this with a client, I’m not only looking at the shares she owns today. I’m also looking at how much of her income comes from the company, whether she has more RSUs scheduled to vest, whether she owns stock through an ESPP or stock options, and what the rest of her investments look like. 

You may already have more tied to your employer than you realize.  Your salary comes from the company. You may receive a bonus based on company performance. You may have unvested RSUs or options that could become a larger part of your net worth over time. And then you may also own company stock in your investment portfolio.

That can work very well when the company is doing well. But it also means a decline in the company’s stock could affect your investments at the same time that your compensation or job feels less secure.

I’m less interested in finding a “perfect” percentage than understanding how much of your financial life depends on one company and whether you’re comfortable with that.

How Are RSUs Taxed?

For most employees, RSUs are generally treated as income when they vest and the shares are delivered. Taxes are usually withheld at that time.

But just because taxes were withheld doesn’t mean enough was withheld.

This is something I watch when a client has a larger vest during the year, especially if she’s also received a bonus, gotten a raise, or has other income coming in.



Rather than waiting until tax time to find out there’s a bigger bill than expected, I’d rather look at it during the year. If the withholding looks low, there may still be time to make an adjustment or an estimated tax payment.

What are Stock Options?

Stock options give you the right to purchase company shares at a set price, often called the exercise price or strike price. Unlike RSUs, stock options don’t simply turn into shares once they vest. You have to decide whether and when to exercise them.

Stock options also have an expiration date. ISOs generally cannot remain exercisable for more than 10 years from the grant date, and your actual exercise window may be shorter depending on your plan or what happens if you leave the company.

That creates a different set of questions:

• Is the current stock price above the exercise price?
• How much cash would it take to exercise?
• What taxes could result?
• Would you hold the shares after exercising or sell them?
• How long do you expect to stay with the company?
• What happens to the options if you leave?

When I’m looking at stock options with a client, these are the things I want to understand before we decide whether exercising now makes sense. I also want to know how much company stock she already owns, what other equity is expected to vest, and what she would actually want to do with the shares after exercising.

Two common types of employee stock options are incentive stock options (ISOs) and nonqualified stock options (NSOs or NQSOs). Their tax treatment is different, so knowing which type you have matters before you make an exercise decision, which is why having a strategy is important. 

How Are Incentive Stock Options (ISOs) Taxed?

ISOs can have favorable tax treatment, but they can also create a tax issue people don’t always expect.

When you exercise an ISO, you generally don’t recognize ordinary income for regular federal income tax purposes at that time. However, the difference between the exercise price and the value of the stock when you exercise can count as income when calculating the alternative minimum tax (AMT).

That means you could potentially have a tax bill related to the exercise even though you haven’t sold the shares or received any cash from them.

This is why I would want to run the numbers before exercising a large amount of ISOs.

For example, it may make sense to exercise some options this year and additional options in future years rather than exercising everything at once. We would also want to look at how much cash you need to exercise, the potential tax impact, how much company stock you would own afterward, and how long you plan to hold the shares.

The timing of when you eventually sell matters too. ISOs have specific holding-period requirements that can affect whether the gain receives more favorable capital-gains treatment, so this is an area where I would also coordinate with your tax professional when the numbers are significant.

How Are Nonqualified Stock Options (NSOs) Taxed?

When you exercise an NSO, the difference between what you pay for the shares and what they’re worth at the time is generally treated as income from your job.

Your employer typically reports this amount on your tax forms, and it may be included in your paycheck for tax withholding.  If you continue to hold the shares after exercising, any further increase or decrease in value generally becomes a capital gain or loss when you eventually sell.

But taxes are only part of the decision.

Before exercising, I’d want to know how much cash you’ll need, how much you may owe in taxes, and what you plan to do with the shares afterward.

For example, if exercising your options would require $50,000 and leave you with another $100,000 in company stock, we’d want to look at that alongside the company stock you already own and any RSUs or other equity that may still be coming.

Just because you can exercise an option doesn’t mean you need to keep all the shares.



What Happens to Stock Options If You Leave Your Job?

If you’re thinking about leaving your company, your equity plan is something I’d want you to look at before your last day, not after.

Depending on your plan, you may have a limited amount of time to exercise vested stock options after you leave. You may also have unvested equity that you’ll give up when you go.

Before making the move, I’d want you to know what you’re leaving behind and what decisions the job change will trigger.

That means looking at which options are vested, which grants will be forfeited, when your exercise window ends, how much it would cost to exercise, and what the potential tax consequences could be.

And if you’re considering another job offer, I’d look at the value of the equity you’re walking away from as part of the compensation decision too. A higher salary at the new company doesn’t tell you the whole story if you’re giving up a meaningful amount of equity to leave.



What Is an ESPP?

Key Takeaways:

An employee stock purchase plan, or ESPP, lets you purchase company stock through payroll deductions.  Many plans allow employees to buy shares at a discount. Some also have a lookback feature that can make the purchase price even more favorable.

If you have the cash flow to participate and your plan offers an attractive discount, I generally think an ESPP is a benefit worth taking a close look at.

But participating in the ESPP and deciding how long to hold the shares are two different decisions.

When I look at an ESPP with a client, I want to understand the discount, whether there is a lookback provision, how much she can comfortably contribute from each paycheck, how much company stock she already owns, and what she plans to do with the shares after they're purchased.

Certain qualified ESPPs under Section 423 also have specific tax rules that depend in part on when you sell the shares, so that's something to understand before making a decision about when to sell.

Is an ESPP Worth It?

If your company offers a meaningful discount and you have the available cash flow, participating in an ESPP can be a very valuable employee benefit.

The bigger question is often not simply whether to participate. It's what you do with the stock afterward.

If you're already receiving RSUs or have stock options, continuing to hold every share you purchase through the ESPP can gradually leave more of your net worth tied to your employer than you intended.

So I would look at:

• How much can you comfortably contribute without taking money away from other priorities?
• What discount or lookback does the plan offer?
• How much company stock do you already own?
• Are more RSUs or other equity expected to vest?
• Do you plan to sell the ESPP shares or continue holding them?
• What tax rules apply when you eventually sell?

You can take advantage of a valuable employee benefit without deciding that you also want to build a large long-term position in your company's stock.

What Is an ESPP?

By the time someone has received RSUs, stock options, or ESPP shares for several years, company stock can make up a significant part of her net worth without her ever intentionally deciding to build such a large position.

When I’m looking at this with a client, I’m not trying to predict where the stock price will go next. I want to know how much she owns today, what else is expected to vest, and how much of her overall financial picture is already tied to the company.

Then we can look at what keeping the shares means compared with selling some of them.

For example, selling could provide part of a down payment on a home, give you money to invest outside your company, or help fund another goal you’ve been putting off. You may also decide that you’re comfortable continuing to own some company stock, but you don’t want the position to keep getting larger every time another grant vests.

We can put numbers around those choices and see what each one means for the rest of your financial plan. What I can’t reliably tell you is whether your company’s stock will be worth more next year.



What Should You Do With the Money If You Sell?

I don’t think the decision should end with selling the stock. Before selling, I like to know what we want the money to do next.

For a client with $75,000 of RSUs vesting this year, we might look at several possibilities. She could be saving for a home, have most of her investments tied up in retirement accounts, need to build up her cash reserves, or have no near-term need for the money and be better served investing it in a more diversified portfolio.

Knowing where the money would go gives us something useful to compare against keeping the shares.  If selling $50,000 of company stock means you can fund a goal, strengthen another part of your finances, or reduce how much of your net worth is tied to one company, we can evaluate that tradeoff.

The question becomes less about whether you should sell the stock and more about which use of that money makes the most sense for you.



How Does Equity Compensation Fit Into Your Financial Plan?

Equity compensation should be considered alongside your taxes, investments, retirement goals, cash needs, and other financial priorities. 

When I’m looking at equity compensation with a client, I’m thinking about what else is happening in her financial life at the same time.

Are we trying to reduce taxes this year? Is retirement getting closer? Is she buying a home? Does she need more money invested outside of her company? Is a large vest coming? Is she considering leaving her job? Are there options that need attention?

Those answers help us decide what to do with the equity.

For one person, that may mean selling RSUs as they vest and investing the proceeds elsewhere. For another, it could mean exercising options over several years. Someone else may decide to participate in her ESPP but regularly sell the shares so her company-stock position doesn’t continue to grow.

The goal is to make sure your equity decisions work with the rest of your financial plan rather than creating a separate strategy around your company stock.



Questions to Ask About Your Equity Compensation:

If you receive RSUs, stock options, or ESPP shares, these are some of the questions I’d want you to think through:

• How much of my net worth is tied to my company’s stock?
• What should I do with my RSUs when they vest?
• What could the tax impact be before my next vest or option exercise?
• If I sell company stock, what do I want that money to do next?
• How does my company stock fit with the rest of my investments?
• What happens to my options or unvested equity if I leave the company?
• Am I making a new decision every time something vests, or do I have a plan for how I’ll handle my equity going forward?

You don’t need to have the answer to every one of these questions. These are the things I would want to understand with a client before making a larger decision around company stock.

Have Questions About Your Company Stock?

If you have RSUs, stock options, or an ESPP and have questions about what to do with them, let’s talk.  We can look at what you have, how much of your finances are tied to your company, and whether there are decisions you should be thinking about now.   Schedule a Conversation



If you have RSUs, stock options, or an ESPP and have questions about what to do with them, let’s talk.

We can look at what you have, how much of your finances are tied to your company, and whether there are decisions you should be thinking about now.

Schedule a Conversation

Frequently Asked Questions

Should I sell my RSUs as soon as they vest?

Not necessarily. The right answer depends on how much company stock you already own, your tax situation, your goals, and whether you would choose to buy the stock today if you had received the same amount in cash.

Are RSUs taxed twice?

RSUs are generally taxed as compensation when they become taxable to you, and then any additional gain or loss after that may be subject to capital gains tax when you sell the shares. That is different from being taxed twice on the same income.

Can stock options create a tax bill before I sell the shares?

They can. In particular, exercising incentive stock options can create an AMT adjustment even if you continue holding the shares. Nonqualified stock options can also create compensation income when exercised, depending on the circumstances.

Is it risky to have too much company stock?

It can increase concentration risk because your income and a large part of your investments may depend on the same company. The amount that is appropriate depends on the rest of your financial situation and how comfortable you are with that risk.

Can a financial planner help with RSUs and stock options?

Yes. A financial planner can help you look at equity compensation alongside your taxes, investments, cash flow, retirement planning, and other goals. When an equity decision has significant tax consequences, I also think it can make sense to coordinate with your CPA or tax professional.