RSUs Made You Wealthy. Read the Fine Print.
The fine print on what you actually own, what you actually keep, and what you’re actually betting.
I met a friend for drinks last month. He works at a company you’ve heard of, and he’s been doing a home remodel - the kind that comes with an architect, a structural engineer, and a timeline that keeps moving. I asked how it was going.
He laughed, the way people laugh right before they say something that isn’t funny. He was scaling back. The company stock had dropped, and he’d been financing the entire project with vesting RSUs.
He’s not alone. He’s just the one who said it out loud.
First, the scale of the thing
For a lot of people, RSUs are a nice supplement to a salary. For tech, biotech, and AI workers, they often are the compensation. At senior levels, equity routinely exceeds base salary - often by a large margin. The salary is sometimes the smallest line on the offer letter.
This is mostly a good thing. The equity surge of the last several years, and the AI wave in particular, has created real wealth for ordinary employees who never founded anything and never took a startup risk. That’s worth saying clearly, because the rest of this post is about the fine print, and the fine print only matters because the upside is real.
But a compensation structure this lopsided toward equity comes with three traps that the people inside it - who are, by training, some of the most analytically capable people alive - walk into with striking consistency.
What an RSU actually is
A Restricted Stock Unit is a promise from your employer to give you shares of company stock on a future date, provided you’re still employed. “Restricted” is the operative word - you don’t own anything yet. You own a promise with conditions attached.
Unlike stock options, which can go underwater and end up worthless if the stock price falls below the strike price, an RSU retains value as long as the stock is worth anything at all. That predictability is exactly why people stop thinking carefully about them.
Trap #1: Counting money you don’t have yet
RSUs vest on a schedule, typically over four years. A grant you receive today doesn’t all arrive today. A quarter might vest each year, or companies use backloaded schedules that front-load retention risk onto the employee. Either way, unvested shares are not yours.
Here’s where things go sideways. People see the grant value - $400,000 in RSUs - and mentally bank the whole thing. They count it in this year’s compensation. They count it in their net worth. They make financial commitments based on it.
It is not your money. It is your money if you remain employed, if the company keeps performing, if the stock holds its value through each vesting date. Three conditions, none guaranteed.
In fairness: if you stay four years and your company issues a fresh annual grant - which most do - you eventually reach a steady state where a predictable amount vests each year. At that point, treating vesting income as reliable becomes reasonable. The danger is the years before that equilibrium, and the assumption that it’s guaranteed regardless.
My wife had RSUs years ago, and we counted the unvested portion as part of our net worth - because the number was right there on a brokerage statement and it felt real. Then an unexpected job change happened, and we watched several hundred thousand dollars disappear from our net worth in an afternoon. The money was never ours. We had just been pretending it was.
The rule: don’t make significant financial decisions against unvested RSUs. Don’t count an entire annual grant as that year’s income. Don’t put unvested equity on your net worth statement. It’s not conservatism - it’s accuracy.
Which brings us back to my friend. He committed to fixed costs - contractors, materials, a timeline - against a variable, unvested, single-stock funding source. The contractor’s invoice does not move with the share price.
Trap #2: The tax is worse and weirder than you think
RSUs are taxed twice, and the first time surprises almost everyone at their first vest.
When your shares vest, the full value is taxed immediately as ordinary income - the same bracket as your salary, not the lower capital gains rate. It shows up on your W-2 alongside your wages, because as far as the IRS is concerned, vested RSUs are wages.
The one mercy: you almost never have to find cash for this. Most public companies automatically sell a portion of your vesting shares to cover the withholding - a mechanism called sell-to-cover. The tax gets paid out of the stock itself. You receive fewer shares than vested.
Here’s where it gets interesting. The standard withholding is a flat 22 percent on supplemental income under $1 million. If you’re a high earner, 22 percent is not your real tax rate. Most high-income tech workers actually owe 32 to 37 percent as ordinary income - while their company withholds only the required 22 percent. The gap doesn’t disappear. It waits for you in April. Plenty of first-time vesters discover a five-figure tax bill they didn’t know was accruing, on money they already spent.
This is worth contrasting with stock options, which are generally taxed when you exercise them - giving you some control over timing. RSUs give you no such control. The taxable event happens on the vesting date, on the IRS’s schedule, not yours.
If you hold the stock after vesting and it appreciates, you’ll owe capital gains tax on the gain - not on the original value, which has already been taxed - when you eventually sell. That second tax, at least, you control.
Trap #3: Should you sell at vest, or hold?
This is the one people argue about, usually around the second drink.
I would always sell at vest and move the proceeds into a broad index fund.
The reason is concentration risk. When your shares vest and you choose to hold, you are making an active decision to invest in your own company’s stock at that day’s price with after-tax money. It doesn’t feel like a purchase because the shares just appear - but economically it’s identical to receiving a cash bonus and immediately buying a single stock with it. Most people would never do that deliberately. The framing of “not selling” makes it feel passive when it is entirely active.
And here’s what makes it specific to RSU holders: you are already exposed to this company in ways that go beyond the stock price. Your salary comes from it. Your next bonus comes from it. Your future grants depend on it. Your near-term career options are tied to the same organization. If the company stumbles badly, you can face a layoff and a stock decline simultaneously - the worst possible moment to have your savings concentrated in the same place.
The counterargument, made with conviction by people who’ve been right about it: but my company is exceptional. The AI numbers are real. Selling means missing the upside.
Maybe. Concentration is how fortunes get made - ask any early employee who held through the run. But it’s also how they get unmade, and the people who held through the crash never believed they were the ones who’d get caught. Holding is a bet. Selling is a bet. There’s no neutral option. The only mistake is not realizing you’re making one.
If your company handed you the cash equivalent of your unvested, unsold stock today and asked you to put it all into a single stock - what would you choose?
If you’ve had the first-vest tax surprise, the unexpected net-worth evaporation, or the hold-versus-sell argument with a colleague - leave a comment. I’m curious which trap got you.
I am not a financial advisor or tax advisor. Nothing in this newsletter is investment or tax advice. Equity compensation and its tax treatment are complex and depend on your specific situation. Consult a qualified CPA or financial advisor before making any decisions. Fine Print Investing publishes weekly.