In this episode of ThimbleberryU, we reset the conversation around RSUs—restricted stock units—and bring it back to the basics while adding context relevant to 2025. We start by defining what RSUs are: a form of equity compensation that incentivizes employees to remain at a company and contribute to its long-term success. These units don’t hold any value until they vest, which typically happens over a period of years. Amy compares this to being promised jelly beans in the future—enticing but only valuable once they’re actually in your hands.
We walk through vesting schedules, with one-year cliffs and subsequent payouts over several years being the norm. The concept of “golden handcuffs” comes into play, where employees lose unvested RSUs if they leave a company, adding a layer of retention-driven strategy from employers. We also dig into the tax implications, emphasizing that there’s no tax when RSUs are granted—but they are taxed as ordinary income once they vest. Many people mistakenly assume the company’s withholding covers the full tax liability, but that’s often not the case, especially for high earners.
The conversation gets technical but clear, explaining how the timing of selling RSUs affects how gains are taxed—short-term gains being taxed as ordinary income and long-term gains benefitting from lower capital gains rates. We debunk the myth of “double taxation” with a simple timeline that separates the grant date, vesting date, and eventual sale date, highlighting how only the gain beyond vesting is taxed again.
We then explore the decision of whether to hold or sell RSUs. It depends on individual circumstances, but key factors include overall exposure to the company through salary, stock, and other equity compensation. Concentration risk becomes a big deal, especially if both partners in a household have RSUs at the same company.
Common mistakes include underestimating tax obligations, overconcentration in employer stock, and failing to plan for tax bracket changes due to RSU income. On the opportunity side, we point to strategic uses of appreciated RSUs—such as charitable donations and goal-based selling. With RSUs becoming more common outside of tech and market volatility remaining high, understanding your vesting schedule and strategy has never been more important.
We wrap up by encouraging listeners to treat RSUs as part of a broader financial plan, not just as a bonus or windfall. Intentionality is key, and professional planning can help manage risk and make the most of these powerful compensation tools.
00:00 – Intro & RSU Basics
01:23 – What Are RSUs and Why Do Companies Offer Them?
02:43 – Vesting Schedules Explained
04:11 – Tax Implications at Vesting
07:29 – Capital Gains on RSUs
09:10 – Myth Busting: Are RSUs Double-Taxed?
10:00 – Should You Hold or Sell RSUs?
11:12 – Risk Exposure and Concentration
13:20 – Common Mistakes with RSUs
14:06 – RSU Opportunities and Strategic Planning
14:52 – Why RSUs Matter in 2025
15:39 – Final Takeaways on RSU Strategy
16:31 – How to Contact Thimbleberry Financial
ThimbleberryU 146 - RSUs in 2025 Explained
Speakers: Jon Gay & Amy Walls
[Music playing]
Voiceover (00:07):
Welcome back to ThimbleberryU. I'm Jon Jag Gay, Amy Walls from Thimbleberry Financial joins me as always.
Hello, Amy.
Amy Walls (00:13):
Hi, Jag.
Jon Gay (00:14):
I know one of the special areas that you work in at Thimbleberry is this area of tech and restricted stock units, also known as RSUs.
We've talked about these in previous episodes, and we've really kind of gotten into the weeds. But we thought it'd be a good idea to really take a step back, really examine on a basic level what the RSUs are, and then kind of talk about where they are here in 2025.
Amy Walls (00:37):
Yeah, with markets bouncing around and more companies granting RSUs than really ever before, we thought it was the perfect time to hit reset. And like you said, let's revisit the basics.
Jag, you and I have had dozens of RSU conversations, so I'm excited to walk our listeners through the essentials again. Because we're episode what, 146 at this point, and I think it was like episode 5 where we went over the basics of RSUs, and I regularly see people get this wrong, and it can cost people a lot.
Jon Gay (01:08):
I want to say episode five would've been like pre-COVID, like the before times.
Amy Walls (01:12):
It might've been.
Jon Gay (01:14):
(Laughs) Alright, for newer listeners or anyone who just needs a reset, give us the quick refresher, Amy. What exactly is an RSU, and why do companies hand them out?
Amy Walls (01:23):
So, RSUs or restricted stock units are a form of equity compensation, and it's a way that an employer can compensate you and tie your pay to both staying at the company and the company's stock performance.
So, basically, it's incentives for you to think about the company longer term and care more because you'll get more out of it, the better they do.
Jon Gay (01:48):
More skin in the game, so to speak.
Amy Walls (01:50):
Exactly. So, with an RSU, you are granted a certain number of shares. But those shares don't become yours right away. They don't have value until they vest.
So, basically, it's like me saying to you, Jag, “Hey Jag, I'm going to give you 500 jelly beans. But I'm going to give you 100 jelly beans once a year, and you need to wait one year to start receiving those.”
Jon Gay (02:23):
I wish you'd use another analogy; I hate jelly beans (laughs).
Amy Walls (02:27):
Well, I promise they're not the black licorice ones.
Jon Gay (02:29):
Thank you. Oh god, don't even go there. It's breakfast time for you and lunchtime for me. No, thank you.
Back to the vesting thing, this is the important part. It's where a lot of people get tripped up. You mentioned the (chuckles) jelly bean analogy, but walk us through the usual schedules.
Amy Walls (02:43):
So, many companies start with a one-year cliff vest, which means you have to stick around for a year before you're going to get any of your RSUs vesting. Just like I used in the example of the jelly beans, I'm promising them to you, but you don't get any of them for a year.
After that, they're going to vest in a consistent pattern. Typically, that's going to be annually, quarterly, or monthly for the next few years. Four years total is common. And actually, I just realized I misspoke earlier on the jelly bean analogy because if I promise you 500 jelly beans over the next five years and you have to wait a year, it's really, you're going to get 125 jelly beans every year.
Jon Gay (03:26):
Got it.
Amy Walls (03:27):
So, my bad.
Jon Gay (03:28):
500 divided by four. Okay, got it.
Amy Walls (03:30):
Here's the other thing, if you leave before they vest (before these RSUs or these jelly beans vest), you forfeit them. That's why RSUs are sometimes called golden handcuffs, but they're one of the things that can count as golden handcuffs. They're designed to keep you at the company.
Jon Gay (03:50):
I've heard that term "golden handcuffs" before. So, that's resonating with me as you're saying that. Alright, Amy, let's get into everyone's favorite part, taxes. We've covered-
Amy Walls (03:59):
Oh, Jag, we need to work on our people skills if we think that's people's favorite part.
Jon Gay (04:03):
(Laughs) We've covered this before, but it is worth slowing down because this is another key area where folks make mistakes.
Amy Walls (04:11):
Absolutely. So, when I tell you that you get all these jelly beans, there's no tax consequence. So, when a company tells you, you get RSUs, there's no tax consequence. However, when they vest, so in our example, the 125 jelly beans that are coming to you year one, those same RSUs are treated as ordinary income.
So, if you're getting 100 shares of the company as RSUs in vest and the stock price is $50, that's $5,000 of income you just realized. Ordinary income, no capital gains, it's just ordinary income. Now, employers typically are going to withhold some shares to cover taxes. So, maybe 25 to 30 shares get sold off. So, now you're left with 70 to 75 shares, and you get to keep the rest.
Jon Gay (05:12):
Sounds convenient, but I feel like there's a big if here.
Amy Walls (05:17):
Well, there is some trickiness to this. The withholding that is done isn't always enough. It depends on your personal situation. So, if you are a higher income earner, you have more equity comp, you're going to get creamed in taxes.
So, here's the deal, the federal tax withholding on RSUs can only be one of two amounts. The federal income tax is brackets, like stair steps. With RSUs, there's only two choices. The default choice is 22%. The other option is 37%.
Now, companies only automatically bump you up to 37% if you have more than a million dollars in income. Some employers have started to give employees the option to choose the higher 37% withholding, which can be valuable when you're maybe getting several hundred shares vesting over the course of the year.
Because the other thing to think about is that these shares (or these grants really) when they're given, most companies, if they're giving them, are kind of giving them as part of compensation reviews each and every year.
And if they're not vesting for four years, you end up layering four different grants on top of each other as the payout. So, it's not like you typically have one grant paying out unless it's your first grant. The next year you're probably going to get another one, and then another one, and then another one. So, they're layered, which helps create that big tax situation.
Now, we've talked about receiving them in terms of the taxes, but now there's a growth question. If you sell them right away, they're obviously not going to grow. You're done, you've paid the income tax, nothing else to worry about.
But if you hold onto the stock and it grows, the additional gain when you sell from when they vest is taxed as capital gains.
Jon Gay (07:29):
Different rate, okay.
Amy Walls (07:30):
But if we hold it more than one year, it's long-term capital gains, a preferential tax rate, and we sell sooner, it's short-term, and that gain is taxed just like income again.
Jon Gay (07:43):
(Laughs) I can see where people get tripped up here, that's a lot to take in.
Amy Walls (07:47):
So, with what I just said, I'm guessing we had a couple listeners go, “Oh no, we're getting double taxed.” And that is a myth we need to bust. So, there is no double taxation, and I want to walk through why.
So, I want everybody to picture inside of their brains as a chalkboard. It's interesting, some people visualize words, and some people visualize pictures. So, I'm speaking to those picture people. So, first, if we imagine a timeline, the first mark on the timeline is when the grant is given.
The next mark further down is going to be when grants vest and let's put four more marks, one each year for the vesting dates. Now, that second mark is the first vest date, but now, I hold those shares six months.
So, I now have another mark on the timeline, halfway between my first vest and my second vest. So, at the second mark where they vested, I had ordinary income. I also set my basis in the stock at that point based on the price when it vested.
So, now when I sell six months later, if my gain is $100 per share, my ordinary income is only on the $100 gain for the sale.
Jon Gay (09:10):
So, we're looking at three points in a timeline. We're just looking at one set of RSUs here, let's not worry about the other ones for now.
So, to simplify this; you've got when you are granted the RSUs, when they vest, and now it's actually income for you because now, it's actually turned into stock units. And then you've got the third point in the timeline is when you sell them.
And that middle point, you're taxed on the income you are given (the value of the stock at the time), and then later, you are taxed on whatever the gain is between when they vested and when you sold it.
Amy Walls (09:45):
Perfect. Again, you're an expert.
Jon Gay (09:48):
So, the question we always come back to when we talk about RSUs, Amy: should someone keep their RSUs or sell them? I'm going to answer for you with your favorite answer — it depends. But tell me why “it depends.”
Amy Walls (10:00):
Oh, Jag, you blow me up when I can't say it depends. So, I've got to go and say it.
Jon Gay (10:05):
If it helps, you can say it to start your answer.
Amy Walls (10:09):
I have to say, it depends.
[Laughter]
Amy Walls (10:11):
I have to, because it does, you are so right. The questions to ask yourself to explain the why: should you sell or keep? Because working for the employer means you're already exposing yourself to risk with that employer.
So, now choosing to hold on to stock is kind of a double bet with that company. You're tying both your paycheck and your portfolio (depending on how much it is) to the same outcome. So, it's an important thing to consider. So, one, it's all about risk.
So, the questions I'd say someone needs to ask themselves to determine what they should do (which is going to paint the picture of the why), is how much of your wealth is already tied to that employer. If this is going to cause you to be overly concentrated, not just in the stock, but when you also add in your employment, that's a dangerous scenario to be in.
Jon Gay (11:12):
You're putting all your chips on red on the roulette wheel.
Amy Walls (11:15):
And by all your chips, it's so easy to think portfolio chips, but it's your income too, your livelihood. Do you also have other forms of equity comp through this company? Incentive stock options, non-qualified stock options, employee stock purchase plan shares, that you might be keeping? That's adding even more stock.
What's your family situation? Are you the primary breadwinner or is there another income stream that if all this (the company and all your investment in it, your income and your stock) goes belly up, are you going to be okay? Or are you already financially independent?
And do you really believe in this company? And everything else is really well-diversified and that's what keeps you financially independent, and so all of this money is really just considered fun money for you? Well, then maybe that risk isn't so big.
Jon Gay (12:12):
Is that basically risk tolerance, what you were explaining there, Amy?
Amy Walls (12:15):
It could be, but I think it's a little bit different. Why I say it's different is risk tolerance is about your comfort level losing or gaining where you are really at a certain point. For people who aren't financially independent, that risk is often going to be different because they're trying to achieve a level of financial independence.
But if someone's already financially independent, they often have a very different mindset or can compartmentalize, “This money over here is everything that I have a specific risk tolerance on and I want to maintain.” And like I said, “This is just fun money that I work for fun, and I think this might pay off, and I'd love to see all this go to my kids when I'm gone.”
Jon Gay (13:09):
So, we've both seen, Amy, how RSUs can create opportunities, but also how they can create headaches. What are the stumbling blocks? What do people most often get wrong?
Amy Walls (13:20):
Ooh, the most common mistakes are assuming withholding covers the full tax bill. I've seen people sell, hold, sell again, have gains, they invest everything, or they spend a big portion and maybe invest some or maybe they spend it all because it wasn't as significant an amount, and then they get hit with the tax bill.
The second thing I'd say is forgetting that vesting adds to your taxable income which can bump you into a higher tax bracket. And then last thing (I think we spend a lot of time on this) is holding too much company stock, in addition to it being your employer and not thinking about the diversification impact of that.
Jon Gay (14:02):
So, those are mistakes. What about some opportunities?
Amy Walls (14:06):
I like that we're going to be ending on a positive note here. Donating appreciated shares to charity and avoiding capital gains taxes (something we didn't even talk about), is a huge opportunity if the stock does really well and you've held onto it.
Selling the stock strategically to fund goals like down payments on another home or a home, education or retirement. Obviously, this does have big opportunities. Coordinating all of these things, if both spouses have RSUs and especially if they work at the same company to avoid that concentration risk.
Jon Gay (14:43):
So, one of the reasons we wanted to bring this up today, Amy, is kind of putting a 2025 twist on it. Why is it especially important now to be paying attention to RSUs?
Amy Walls (14:52):
Well, there's a lot going on in the world. And we started this year with a lot of volatility and there's no reason to say it can't come back at any point in time. Volatility happens for different reasons. So, these RSUs can feel like free money, but then it can be shocking when they suddenly evaporate if the price drops.
We're hearing more frequently that companies outside of tech are granting RSUs more frequently. So, more people are facing these choices. And in a job market (especially when we look at tech with layoffs and transitions), it's important to know what happens to your RSUs if you leave. Because those unvested shares don't come with you.
Jon Gay (15:34):
Very good point. Alright, as we start to wrap up, Amy, what are some bottom-line takeaways here?
Amy Walls (15:39):
First, RSUs are stock compensation that vests over time, and it doesn't have value until it vests. That's really important, no value until vesting. They're taxed as ordinary income at vesting and any growth after that is taxed as capital gains.
There's no universal answer on selling versus holding, but it is true that concentration risk is real (laughs). And the last reminder I'd say is always plan ahead. Know your vesting schedule, understanding the tax exposure, and be intentional with your RSUs as part of your bigger financial strategy.
Jon Gay (16:17):
That financial strategy, that overall financial strategy. There are so many tools that you want to incorporate to stay diversified.
Amy, if one of our listeners wants to talk to you and your team at Thimbleberry Financial about planning their financial future and having that plan put together, what are the best ways to find you?
Amy Walls (16:31):
Yeah, they can find us online at thimbleberryfinancial.com, or by giving us a call at (503)-610-6510.
[Music playing]
Jon Gay (16:41):
Good stuff today, going back to the fundamentals of RSUs because I know it's important to so many of our listeners. Always a pleasure, Amy, we'll talk again soon.
Voiceover (16:48):
Securities offered through registered representatives of Cambridge Investment Research Inc, a broker dealer member of FINRA/SIPC. Advisory services through Cambridge Investment Research Advisors, Inc., a registered investment advisor. Cambridge and Thimbleberry Financial are not affiliated.
Discussions in this show should not be construed as specific recommendations or investment advice. Always consult with your investment professional before making important investment decisions.
Securities offered through registered representatives of Cambridge Investment Research, Inc., a broker dealer, member of FINRA/SIPC. Advisory services through Cambridge Investment Research Advisors, Inc., a registered investment advisor. Cambridge and Thimbleberry Financial are not affiliated.