What you’ll learn in this blog
- How RSU vesting works, including key grant terms like grant date, vest commencement date, and vesting schedule
- What a typical 4-year vesting schedule with a 1-year cliff looks like
- Why each vesting date is a taxable event and how vested RSUs are treated as ordinary income
- What blackout periods and trading windows mean and why they matter before you try to sell
- How to think through hold vs. sell, including common reasons people choose each path and a balanced approach
RSUs can look straightforward until you’re staring at your equity portal, a pay stub line item you didn’t expect, and a calendar full of dates you can’t ignore. The goal of this blog is to help you turn your RSUs from random stock stuff into a strategy you actually understand and can use.
Here’s What You Need to Know About Vesting
With Restricted Stock Units (RSUs), you don’t need to pay anything to receive your shares. You simply receive the shares from your employer when you meet certain conditions. The primary condition you must meet is time, which brings us to grants and vesting.
RSU Grants and Vesting Schedules
Typically, when you are first hired by your employer, you’ll receive a compensation package outlining:
- Your base salary
- Bonus or incentive targets
- And sometimes, a form of equity compensation such as a RSU grant
As a new employee, your offer letter may say something like, You are granted 1,200 Restricted Stock Units (RSUs).
Then, you might see a separate RSU Grant or Award Notice. This outlines the details of that grant, including:
- Grant Date
- Number of RSUs Granted
- Vest Commencement Date
- Vesting Schedule
What do Vest Commencement Date and Vesting Schedule Mean?
- Vest Commencement Date: The date the vesting clock starts.
- Vesting Schedule: The timeline that determines when you actually receive your shares.
In most cases, you won’t receive all of your RSUs at once. Instead, your RSUs will vest over time as long as you remain employed.
The Typical 4-Year Vesting Schedule With 1-Year Cliff
While vesting schedules can vary, the most common structure is four years with a one-year cliff and quarterly vesting after that.
Let’s Walk Though a Realistic Example:
- Grant Date – January 15, 2026
- Number of RSUs Granted – 1,200
- Vest Commencement Date – January 15, 2026
- Vesting Schedule – 1-year cliff, quarterly thereafter, 4-year vesting total
How This Works:
- January 15, 2027 (1-year anniversary)
- 25% of your RSUs vest. This is the cliff.
- 25% of 1,200 = 300 RSUs.
- You’ll receive 300 shares of your company’s stock.
- After that (Starting on April 15, 2027)
- The remaining 900 RSUs vest quarterly for the next 3 years.
- 900 shares ÷ 12 quarters = 75 RSUs every 3 months
- This RSU grant will finish vesting on January 15, 2030.
You’ll typically see this laid out clearly in your equity portal (Fidelity, Schwab, E*TRADE, Morgan Stanley, etc.) listing out each vesting date and how many RSUs vest on each date. That’s your vesting schedule.
This structure incentivizes you to stay with the company. Over time, RSUs can become a substantial portion of total compensation.
What Happens at Each Vesting Date?
Each vesting date is a taxable event, which is where many employees get caught off guard.
Continuing our example:
- 300 RSUs vest on January 15, 2027 (your first vesting date).
- On your vesting date, your company’s stock price (usually the closing price used for RSUs) is $100 per share, as an example.
So the total value at vest:
- 300 shares × $100 per share = $30,000
That $30,000 is the total value of your RSUs on that vesting date.
How Is That Taxed?
In the example above, that $30,000 now becomes ordinary income to you. That means the total value of your vested RSUs on each vesting date is added to your regular income for the year. This is why RSUs are considered compensation.
When you look at your pay stub for the pay period that includes your vesting date, you’ll often see a line item like RSU under your earnings, in addition to your normal salary or any other income.
From the IRS’s perspective, you were just paid an extra $30,000, which will be considered taxable compensation.
If you’d like to learn more about how RSUs are taxed, we’ve got a blog dedicated to this topic.
After your shares vest, and you understand how they are taxed, you’ll want to decide when you can and cannot sell them. This brings us to blackout periods and trading windows.
Here’s What You Need to Know About Blackout Periods and Trading Windows
Some companies have specific time periods where you are and are not allowed to sell your RSUs.
A blackout period means employees cannot sell company stock within a certain time period. But, you may still be able to buy during this time.
A trading window is different from a blackout period because it describes a time when employees can trade company stock.
Understanding when you can and cannot sell your RSUs is part of your strategy. There will always be certain days and time windows where you are not allowed to sell. Knowing this schedule up front can help you plan for the best times to hold and sell. If you are unsure when these dates take place, talk to your employer for more details.
Hold or Sell? Here’s What You Need to Know About Your Vested RSUs.
You now own shares, congratulations! Now, you may be thinking, what’s next? Here are a few options for you to consider.
Reasons You Might Want to Hold
- You believe the stock will continue to grow and become more valuable.
- You’re not overly concentrated in your company’s stock.
- You notice a dramatic drop in stock price that seems temporary and not in alignment with any news cycles or company performance issues.
Reasons You Might Want to Immediately Sell (Often Recommended)
- You’ve already been taxed on the value of your RSUs at vest. Holding longer exposes you to stock price risk and potential extra capital gains tax later.
- It’s important not to be over-concentrated in your company’s stock. Having too much of your wealth in a single company can be very risky if the stock drops.
- Selling and reinvesting elsewhere helps you diversify your portfolio, potentially giving you smoother returns over time.
- You may need cash for short-term goals or major purchases like emergency funds, down payment on a home, or paying off high-interest debt.
- You’ll likely have more RSUs vesting in the future over the course of your employment, so you still get to participate in the stock’s upside from future grants and vesting.
- Your company’s stock may already be trading at a very high or extended level when your RSUs vest. Selling can be a way to lock in that higher price before it potentially comes back down.
A Balanced Approach (Optional)
Many people sell a portion of their RSUs immediately and hold the rest. Example: Sell 50-75%, keep the remaining percentage for potential upside.
If you want to know more about RSUs, we’ve got a series on this topic. Learn more about RSU taxes, 101 info, and more.
Let’s Recap
You just learned:
- How RSU vesting works
- What a typical 4-year vesting schedule with a 1-year cliff looks like
- Why each vesting date is a taxable event and how vested RSUs are treated as ordinary income
- What blackout periods and trading windows mean and why they matter
- How to think through hold vs. sell, and a balanced approach
You Deserve Clarity and Confidence
RSUs don’t have to be a point of stress. With the right guidance and a clear plan, your equity can stop being a source of stress and start becoming a source of opportunity.
At ECA, we specialize in helping employees like you make sense of your equity compensation, optimize your tax strategy, and build long-term wealth.
