RSUs vesting

[kork13]

This one isn't for myself, actually for my bother & his wife. They both work for Boeing, and have some RSUs starting to vest soon. He asked for my advice on how he's should handle them, but I'm not really familiar with how they work.

From my very basic (and possibly mistaken) understanding .... I think in general terms, RSUs are basically company stock shares that you're given in lieu of salary, and their basis ("purchase" price) gets set based on the date you were first issued them (?). Then when they vest, it basically just means they're no longer restricted, and you can do anything you wish with them (sell, transfer, gift, hold, etc).

Is that all accurate? Any other vitals considerations? If that's all correct... It basically just comes down to a question of hold, sell, or otherwise, right?

They're on pretty decent financial footing overall -- early 30s, DINKs but maybe kids at some point soonishly, good income, masters degrees done, good retirement savings, own their home with a reasonable mortgage, no major debt otherwise. May change companies in the next few years, but TBD.

Are there any ROT like "sell them ASAP" or "wait until XYZ" with RSUs?

I've never worked in the corporate world where RSUs are a factor, so I just wanted to check my facts & get some general ideas/suggestions before I talk with them about it.

[srblanco7]

I think you hit the major points - though there can be "fine print". I had RSUs (-ish?) which I sold at the time of vesting, where I only received the value of the increase in the share price vs. the full value of the shares at the time of vesting. It'll trigger a tax liability (as income) once you exercise. My company did not withhold anything from my RSU payment, so I had to make estimated Federal & State tax payments.

[LivingAlmostLarge]

Nope the price when they are granted are supposed to be your comp. But when they vest they are your income. So if it was $100/share when they granted and they granted you $50k work they give you 500 shares typcially over 4 years so 25% a year vest. That means you are now able to sell the shares. Depending on the company there might be blackout windows that you can or cannot offload the shares. It depends on company and position in company as well.

Also if the stock went from $100 to $200 you now have instead of $25k in stock vesting $50k and that is income. Typically they only withhold a minimal amount of taxes or none depending on how you fill out the forms with the company processing the vesting. I tell everyone to sell upon vest. Why?

If you really believe in the company take the money and rebuy the stock in another account. If you don't then you've locked in your income $50k and the taxes owed and you can diversify your investment instead of working and tying stock. Basically it's a bonus in the form of stock.

You will have a tax liability upon vest whether or not you sell. You should always sell. Of course not selling and single stock can make you rich so YMMV

[kork13]

So RSUs get taxed more like deferred comp? Doesn't matter what the value is when they're granted to you, only what the value is upon vesting ... So that vested value is really the tax basis, and you're taxed based on their value on the date of vesting, and they're taxed as ordinary income? But then if you hold them for a while after vesting, any gains would be ST/LT capital gains, with the vested value as a basis.

[LivingAlmostLarge]

So RSUs get taxed more like deferred comp? Doesn't matter what the value is when they're granted to you, only what the value is upon vesting ... So that vested value is really the tax basis, and you're taxed based on their value on the date of vesting, and they're taxed as ordinary income? But then if you hold them for a while after vesting, any gains would be ST/LT capital gains, with the vested value as a basis.

So there is no benefit to holding them. The vested value is income, not capital gains. The basis is just buying it at $100 a share. Buying ESPP and at a discount there is a tax benefit but holding period of 2 years negates that in my mind. Plus the basis is upon purchase dates. It's an excellent short term investment ESPP. Guaranteed 10% return basically.

The question to ask is if I gave you $50k would you buy $50k of Boeing stock? Honest answer? Hell to the no.

[jenn_jenn]

The question to ask is if I gave you $50k would you buy $50k of Boeing stock?

Yep, this is the best approach to RSUs.