RSUs vs. Stock Options: What to Do When They Vest

Equity compensation is the main reason many Utah executives build real wealth, and it is also the area where we see the most avoidable mistakes. The two most common forms, restricted stock units and stock options, look similar on an offer letter and behave very differently in your tax return and your portfolio.

RSUs: vest is a taxable paycheck in shares

A restricted stock unit is your employer’s promise to deliver shares on a schedule, usually over three or four years. You do not own anything until a vest date arrives. On that date, the shares are yours, and the fair market value of every share that vested is reported as ordinary wages on your W-2. That is true even if you never sell.

Your employer will typically withhold taxes by keeping some of the shares, often at the flat federal supplemental rate. For a Utah executive in a higher bracket, that flat rate is frequently lower than your actual marginal rate, so the withholding falls short. Add Utah’s flat 4.45 percent for 2026 and the gap can be meaningful on a large vest. We help clients estimate the shortfall and make estimated payments so April is not a surprise.

After vest, your cost basis is the value on the vest date. If you sell right away, there is almost no additional gain or loss. If you hold, any further change is a capital gain or loss, short-term for the first year and long-term after that.

Hold or sell?

Holding vested RSU shares is equivalent to receiving your bonus in cash and immediately buying company stock with all of it. Most people would never do that deliberately. They hold because selling feels like a vote against the company or because they expect the stock to go up.

Our default guidance is to sell at vest and put the proceeds to work according to your plan, then make a separate, deliberate decision about how much company stock you want to own. For many executives the answer is some, but far less than accumulates by default. Our article on concentrated stock positions explains why.

If your company restricts when you can trade, a 10b5-1 plan lets you schedule sales in advance so vests can be sold even during closed windows.

Stock options: vesting gives you a choice

A stock option gives you the right to buy a set number of shares at a fixed exercise price. Vesting means you are now allowed to exercise. It is not a taxable event. If the stock trades below your exercise price, the option is underwater and you simply wait.

What happens when you exercise depends on the type of option.

Non-qualified stock options (NQSOs). The spread between the stock price and your exercise price at the moment of exercise is ordinary wage income, withheld and reported like an RSU vest. After that, the shares behave like any other stock you bought.

Incentive stock options (ISOs). No regular income tax at exercise. If you hold the shares at least one year after exercise and two years after grant, the entire gain from exercise price to sale price is a long-term capital gain. The catch is the alternative minimum tax: the spread at exercise counts as income for AMT purposes, and a large ISO exercise can trigger a substantial AMT bill in a year with no cash from a sale. Selling ISO shares before the holding period ends, called a disqualifying disposition, turns the gain back into ordinary income but avoids the AMT problem.

How we think about exercising

Options have time value. An option with five years left is worth more unexercised than exercised, because you have not yet put your own money at risk. So our starting point is not to exercise early just because you can. The reasons to exercise include an approaching expiration date, a departure from the company that starts a short exercise clock, a deliberate plan to start the ISO holding period while the spread is small, or a year when your other income is unusually low.

The calendar is the plan

Vest dates, trading windows, option expirations and estimated tax deadlines all fall on a calendar. Executives who make each decision the week it comes due tend to hold too much company stock and underpay their taxes. Executives who put the whole year on one page, tied to their goals and tax brackets, make better decisions with less stress. Putting the year on one page is most of what our executive financial planning work does.

Frequently asked questions

Written by Trevor Hanson, Founder | President | Author | Wealth Advisor, RJFS. Last reviewed: October 28, 2026.