How to Cash Out Your RSU After They Vest

Restricted Stock Units (RSUs) represent a common form of equity compensation granted by employers to their employees. Unlike traditional stock options, RSUs are not shares themselves but a promise to deliver shares of company stock once specific conditions are met. Cashing out these units means converting the vested shares into liquid funds, providing a direct financial benefit to the employee.

Understanding RSU Vesting and Release

Restricted Stock Units become actual shares of company stock through a process known as vesting. Vesting signifies the point at which an employee gains full ownership of the RSUs, transforming them from a promise into tangible assets.

Companies typically establish a vesting schedule that dictates when and how RSUs become available. A common arrangement is time-based vesting, where shares become owned gradually over a set period, such as four years. For instance, a graded vesting schedule might release 25% of the total RSU grant each year, providing a steady stream of shares over time. Another common method is cliff vesting, where a significant portion, or even all, of the RSUs vest at once after an initial waiting period, often one year.

Beyond time-based conditions, some RSUs may have performance-based vesting, requiring the achievement of specific company or individual goals before the shares are released. Once vesting conditions are satisfied, shares are released to the employee, typically in a designated brokerage account.

The Mechanics of Selling Vested Shares

Once your Restricted Stock Units have vested and been released, they transition into actual shares held in a brokerage account. This makes them available for sale, allowing you to convert them into cash. The procedure for selling these shares is managed through a brokerage firm designated by your employer.

Accessing your brokerage account is the first step, usually through an online portal provided by the firm. To initiate a sale, you will place a sell order for the desired number of shares.

You will encounter various order types, with market orders and limit orders being the most common. A market order instructs the broker to sell your shares immediately at the best available current price, which offers speed but no price guarantee. Conversely, a limit order allows you to specify a minimum price at which you are willing to sell; the order will only execute if the stock reaches or exceeds that price, providing price control but no guarantee of execution.

After placing your sell order, the transaction will process, and the proceeds from the sale will be settled. Settlement typically takes a few business days, after which the funds become available. Your brokerage account will then reflect the cash balance, which you can withdraw via direct deposit to a linked bank account or by requesting a physical check.

Tax Considerations at Sale

The taxation of Restricted Stock Units involves two distinct phases: at vesting and at the point of sale. The fair market value of the RSU shares on their vesting date is considered ordinary income. This amount is subject to federal income tax, state income tax (if applicable), Social Security, and Medicare taxes, similar to your regular salary or a cash bonus. This income is reported on your W-2 form for the year in which the vesting occurs.

To cover these immediate tax liabilities, companies commonly employ a “sell-to-cover” method. Under this approach, a portion of your newly vested shares is automatically sold by the employer’s designated brokerage to satisfy the required tax withholdings. While convenient, the withholding rate for supplemental wages, which includes RSU income, is typically 22% for amounts up to $1 million, potentially rising to 37% for income exceeding this threshold. This withholding might not fully cover your actual tax liability, especially if you are in a higher income tax bracket, potentially leading to an outstanding tax balance. Alternatively, some employers may allow you to cover the tax obligation with cash out-of-pocket, enabling you to retain all vested shares.

When you subsequently sell the vested shares, any difference between the sale price and their fair market value at the time of vesting (which becomes your cost basis) results in a capital gain or loss. If you sell the shares within one year of the vesting date, any gain is classified as a short-term capital gain and is taxed at your ordinary income tax rate. However, if you hold the shares for more than one year after vesting, any gain is considered a long-term capital gain, which typically qualifies for lower tax rates. For the 2025 tax year, long-term capital gains tax rates are generally 0%, 15%, or 20%, depending on your overall taxable income. Consulting a tax professional for personalized advice is advisable to understand your specific tax situation.