Can You Sell RSUs? How and When to Sell Your Stock

Restricted Stock Units (RSUs) are a common form of equity compensation provided to employees. They represent a promise from an employer to deliver shares of company stock, or their cash equivalent, at a future date once certain conditions are met. While RSUs can be a valuable part of an overall compensation package, they are not immediately available for sale. Selling them requires understanding specific conditions and procedures.

When RSUs Become Sellable

RSUs are not actual shares of company stock until they “vest.” Vesting is the process by which an employee gains full ownership rights to the RSU award. Until RSUs vest, they cannot be sold or transferred. The specific conditions for vesting are outlined in the RSU grant agreement and typically involve either continued employment over a set period or the achievement of specific performance milestones.

Most RSU grants follow a time-based vesting schedule, requiring the employee to remain with the company for a predetermined duration. For instance, a common structure might involve a four-year vesting period where a portion of the RSUs, such as 25%, vests each year. Some time-based schedules may include a “cliff vesting,” where no shares vest until an initial period, often one year, has passed, after which a significant portion vests, followed by regular vesting intervals. Performance-based vesting ties the vesting of RSUs to the achievement of specific company or individual performance targets, such as financial goals. Some RSU awards may even combine both time-based and performance-based conditions, or require a liquidity event like an initial public offering (IPO) for vesting.

How to Sell Vested RSUs

Once RSUs have vested, they become actual shares of company stock and are typically deposited into a brokerage account. This account is often managed by a third-party administrator. These shares are then treated like any other stock, giving the employee the right to sell or hold them.

To sell vested RSU shares, the first step involves accessing the designated brokerage account. Employees can log in online to manage their equity awards. From there, they can place a sell order for the shares. Common order types include a market order, which executes immediately at the current market price, or a limit order, which specifies a minimum selling price.

After a sell order is placed and executed, the transaction undergoes a settlement process. For most stock sales, settlement typically occurs one business day after the trade date, and cash proceeds become available.

Taxation on RSU Sales

Taxation of RSUs involves two distinct events: the vesting of the shares and their subsequent sale. At the time of vesting, the fair market value of the shares is considered ordinary income to the employee. This amount is subject to income tax, as well as Social Security and Medicare taxes. Employers are generally required to withhold a portion of the shares or cash to cover these tax obligations.

When the vested shares are later sold, any gain or loss from the sale is subject to capital gains tax. The cost basis for calculating this gain or loss is the fair market value of the shares at the time they vested. However, if the shares are held for a period after vesting and their value changes, the difference between the sale price and the cost basis (vesting price) will be a capital gain or loss. If shares are held for one year or less after vesting, any gain is considered a short-term capital gain and is taxed at the employee’s ordinary income tax rate. If held for more than one year, any gain is treated as a long-term capital gain, which typically qualifies for lower tax rates.

Common Selling Restrictions

Even after RSUs have vested, employees may encounter certain restrictions that prevent them from immediately selling their shares. These limitations are typically imposed by the company or by regulatory requirements. Companies often implement “blackout periods” during which employees are prohibited from trading company stock. These periods commonly occur around significant corporate events to prevent trading based on material non-public information.

Many companies also establish specific “trading windows,” which are defined periods when employees are permitted to buy or sell company shares. These windows are often outside of blackout periods and are communicated to employees. Employees who possess material non-public information are subject to insider trading rules, which prohibit them from trading company stock until that information becomes public. Some companies may also have internal stock ownership guidelines that require certain employees to hold a minimum amount of company stock for a specified duration.