When Do My RSUs Vest?

Picture this: You’ve just landed a job at a tech startup. Along with a competitive salary, they’ve offered you a Restricted Stock Unit (RSU) package. Exciting, right? But then comes the question: “When do I actually get these shares?” 

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This is where the vesting schedule comes in – your roadmap to RSU ownership. Understanding this schedule is key to knowing when you’ll own your RSUs and what it takes for them to vest. 

Key Components of Your RSU Vesting Schedule 

Here’s what you’ll find in your vesting schedule: 

• Grant Date: The starting point – when your RSU journey begins. 
• Vesting Period: The timeframe over which your RSUs become fully yours. 
• Vesting Increments: How often portions of your RSUs vest and become available. 
• Vesting Triggers: The conditions that must be met for your RSUs to vest. 
  

When your RSUs vest, you officially gain ownership of the shares and can choose to sell or hold them. The vesting schedule details these terms, and you can typically find it in your company’s Summary Plan Description (SPD) or Stock Purchase Agreement (SPA). This information will most likely be part of your initial paperwork during onboarding with an employer, so contact HR if you cannot find this portion of your contract. They can be an excellent resource to assist or help you find the information you need. Understanding your RSU vesting schedule is crucial as it outlines when and how you can access your shares. 

Types of Vesting Schedules 

In the tech world, you’ll typically encounter two main types of vesting schedules: 

• Time-based vesting (most common in tech) 
• Performance-based vesting 

Restricted StockUnits work by providing employees with company shares that vest over time. This incentive encourages employees to remain with the company for a certain period to gain full ownership of the shares. Although RSUs can be used as an incentive to retain key employees, they are not the same as incentive stock options (ISOs).  

Real-World RSU Vesting Example

Let’s look at a potential real-life scenario. Meet Sarah, a software engineer who just joined TechNova, a promising AI startup. Her offer includes 6,000 RSUs with a 4-year graded vesting schedule. Here’s how her vesting journey might unfold: 

• End of Year 1: 1500 RSUs vest (25%) 
• End of Year 2: Another 1500 RSUs vest (now at 50%) 
• End of Year 3: 1500 more RSUs vest (75% total) 
• End of Year 4: Final 1500 RSUs vest (fully vested at 100%) 

Sarah gains more ownership in TechNova each year, aligning her success with the company’s growth. At the end of year four, she will have complete ownership of the 6,000 shares that were part of her job offer. *The bar chart below shows this growth visually.  

It’s worth noting these key points in the vesting process: 

• RSUs will vest on the anniversary of your grant date each year. This is typically the date when you started working with the company. 
• Only at the end of Year 4 will you be fully vested.  
• Your vesting period is the time it will take you to become the full owner of your Restricted Stock Units.  

The company's stock performance might influence Sarah's decisions regarding her vested RSUs. Relying heavily on RSUs could expose her to risks associated with company stock price fluctuations, making diversification a crucial strategy to mitigate these risks. Another name for this is concentration risk.  

RSU Vesting Strategy 

Understanding your vesting schedule isn’t just about knowing when you’ll get your shares. It’s about strategically planning your career moves, financial decisions, and even your tax strategy (a topic we will explore in future blog posts).  

As you progress in your tech career, you might receive multiple RSU grants, each with its own vesting schedule. This can create a continuous stream of vesting events, turning your equity compensation into a powerful wealth-building engine. 

💡Tip : Understand your vesting schedule.  

To navigate your vesting journey like a pro, keep these key points in ​mind: 

• Locate Your Vesting Schedule: When you begin employment, there is a contract that must be signed. It’s typical to find your Summary Plan Description (SPD) or Stock Purchase Agreement nestled within this agreement.  
• Keep Track of Important Dates: Note key vesting dates to plan your financial moves. This is critical if you have been with a company for a number of years and have multiple grants as companies can underwrite changes every few years to grants. These changes could apply to your vesting schedule and are good to be aware of as you make financial decisions and possible projections.  
• Understand Your Triggers: Know what conditions (time, performance, or both) must be met for vesting. 
• Read the Fine Print: Before accepting a job offer from a competing company or a new start-up, be sure you know what happens to your unvested RSUs upon leaving the company. It may be in your best interest to negotiate a later start date with a new employer to ensure you take advantage of upcoming shares near vesting.  
• Tax Planning: Remember, vested RSUs are taxable income and you pay this tax no matter what. Plan accordingly! 
• Capital Gains: You may be working on a few major projects that require funding but aren’t sure yet if you need to use RSUs to cover the costs. This is when knowing how long you plan on holding your vested RSUs makes a difference. Short and long term capital gains are taxed differently depending on your income bracket so keep that in mind if you are planning on keeping your vested shares to cash out at a later date.  
• Stay Informed: It’s worth checking the price of your company’s stock performance occasionally as it directly impacts your RSU value. No need to do it daily but monthly or quarterly can help you have a good idea of the fluctuations you can expect in the market concerning your stock.  
• Consult a Financial Advisor: A financial advisor can provide personalized advice tailored to your financial situation and help optimize the benefits of your RSUs. 

Successful vesting

While vesting schedules might seem straightforward, they can get complex, especially when dealing with multiple grants, changing tax implications, or company-specific nuances. This is where professional guidance can be invaluable. 

At Schmidt Financial Management, we specialize in helping tech professionals like you work to optimize your equity compensation strategy. RSUs play a crucial role in employee compensation, serving as a reward and incentive based on performance, tenure, or to encourage retention. We can help you: 

• Understand the nuances of your specific vesting schedule 
• Plan for tax implications of vesting events 
• Integrate your RSUs into your broader financial plan
• Make informed decisions about holding or selling vested shares 
  

Special Circumstances 

Certain situations, such as death, disability, or job changes, can impact how RSUs are handled. In the event of death, RSUs will typically vest and become payable to the employee’s estate or beneficiaries, depending on the company’s plan. In the event of disability, vesting may continue, but the actual plan and grant agreement controls this. Job transitions can also have implications for RSUs, including modifications to the vesting schedule and the potential loss of unvested shares. Understanding how these scenarios may impact your RSUs and planning strategically to safeguard your financial interests is essential.  

Your Next Vest Move 

As your RSUs begin their vesting journey, it’s crucial to have a clear strategy. Are you maximizing the potential of your vesting schedule? How does it align with your career and financial goals? Understanding the value of company stock is essential when planning your financial future. 

Remember, your equity compensation can be a game-changer in the tech world. Don’t let your RSUs vest on autopilot – take control of your financial future. Utilize the tool that is your vesting schedule. Keep it accessible, and share it with your advisor. Your future self will thank you! 

Disclaimer: Schmidt Financial Management, Inc., (SFM) is a registered investment adviser. This information is only intended for clients and interested investors residing in jurisdictions in which SFM is qualified to provide investment advisory services. Blog posts do not intend to provide personalized investment advice through the various broadcasts and does not represent that the securities, services, or strategies discussed are suitable for any investor. Investors should consult with their financial advisors before making any investment decisions. The S&P 500 Index is a market-value weighted index representing the 500 largest U.S. public companies. The Bloomberg US Aggregate Bond Index measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. This video is for informational purposes only and does not constitute a recommendation to buy or sell cryptocurrency. This content specifically addresses restricted stock units (RSUs), which can be complex financial instruments. The information presented here may not be applicable to your individual situation. We strongly recommend consulting with a qualified financial advisor, tax professional, or legal counsel before making any decisions regarding RSUs or other financial matters. Equity 411, presented by Schmidt Financial Management, Inc. (SFM) does not guarantee the accuracy, completeness, or timeliness of the information provided. We are not liable for any losses or damages arising from the use of this information. Investing in securities, including RSUs, involves risks and may not be suitable for all individuals.