(4 minutes to read)

This title is meant to grab your attention. So it taps into the most-common phrases people type in when trying to figure out what to do with their restricted stock units (RSUs)—terms like “RSU cost basis,” “sell to cover or pay cash,” and “RSU double taxation.” Yet while those are fair questions, they’re not the most essential ones. They’re not the questions that help you best build financial security and freedom.

To build that kind of future, it is important you know the basics of how RSUs work and understand the potential gotchas, like avoiding double tax and managing underwithholding. But more importantly, you should know RSUs are just one piece of a much larger financial puzzle. You need to approach your finances holistically—thinking about your entire financial situation, your long-term strategy, and how your money will help you live the life you want.

Yes, managing your RSUs is important. It’s part of the wealth formula. But if you want to operate at the next level, you need to look at the bigger picture and take those next-level wealth-building actions with your RSUs.

First, the basics, which we can boil down to one main point: RSUs are income, not magic. At a high level, RSUs are just like other forms of income. Sure, the income is in the form of stock instead of cash, which often derails our thinking about what to do with them. But fundamentally, RSUs represent another source of income available for saving and investing. You don’t need to hold the stock, hoping it will appreciate. It’s often better to think of it as a bonus and as new cash available for investment. This form of “new cash available” though does come with some considerations of its own. You can tackle all of these in a few steps.

Step 1: Save It, Invest It

The first step to turning RSU income into wealth is to save it and invest it. Don’t let the fact that it comes in the form of company stock distract you from what matters: growing that money over time. A best practice is to sell those RSU shares as they vest, and invest the after-tax sale proceeds in your diversified, long-term investment portfolio. That helps the money grow more reliably over time.

Put it to work in a tax-efficient, low-cost portfolio of stocks and bonds. Historically, investments like US large company stocks have earned about 10% per year, US small company stocks about 12%, and bonds about 5%. Mix those investments together to match your need and ability to take investment risk to reach your long-term growth goals.

As your wealth grows, you may decide to explore other investment opportunities, such as real estate or private investments like private equity or venture capital. But first, start with a base investment portfolio of liquid, diversified, publicly traded securities to get your money growing.

At this point, don’t obsess over taxes. Many people spend too much time trying to minimize taxes on their RSUs. The reality is RSU income is taxed as compensation income, just like your wages. You can’t really reduce that tax, but you can make sure your money is working for you after taxes.

That said, there are certainly tax issues to be aware of and manage. RSUs can be taxed twice if the tax-reporting documents aren’t in order. And you can wind up with a big tax bill at tax time because enough taxes may not have been withheld from your paystub. There are other tax-planning opportunities during high-income years, such as charitable contributions. But overly focusing on tax savings often distracts people from the bigger picture and ultimate goal: getting those RSUs into a form where they have an opportunity to grow your wealth.

If you have accumulated a lot of RSU shares (in the industry jargon, we call that a concentrated stock position), you may need more focused tax planning and a well-thought-out strategy for moving out of the single-stock portfolio and into the safer many-stock portfolio. For example, at this time of year, you can use timing strategies—like selling some shares in December and some in January—to spread income across two tax years. This might help you stay in a lower tax bracket. But don’t get stuck here. Managing taxes is important, but it’s only one piece of the puzzle.

Step 2: Diversify

Whether you’re holding a small number of shares from a recent quarterly RSU vesting, or you’re holding a large, concentrated position in your company’s stock, it’s time to diversify. This protects your portfolio from overreliance on the success (or failure) of one single company.

Diversification might mean selling off shares and reinvesting the proceeds into a broader portfolio. Yes, if the stock price is rising, it might not feel like a good time to sell. Similarly, if the stock price has dipped recently, you may feel like waiting for it to go back up. But in both cases, we don’t know what will happen next. The stock price might drop in either case. Selling the stock and converting it to a broader set of investments can increase the odds of earning the rate of return you need to build wealth.

Remember, the company’s stock price is not under your control. What is under your control is how you save and invest the funds from your RSUs to build wealth.

Step 3: Think Holistically, Beyond RSUs

Building wealth isn’t just about saving taxes or timing RSU share sales. It’s about approaching your finances holistically. Invest in a diversified portfolio. Build your human capital—your ability to earn, grow, and thrive in your career. Focus on the activities and habits that build wealth: saving, investing, growing your skills, and making decisions that align with your long-term goals.

RSUs are a powerful wealth-building tool, but they’re just one part of the bigger financial picture. To solidify that picture, you can’t focus the bulk of your valuable attention on cost basis calculations or obsessing over RSU taxation. You’ve got to ask bigger questions. You’ve got to think about your entire portfolio, your long-term strategy for growing net worth, and how your money aligns with your goals.

If you want to operate at that level, step back, think holistically, and make sure your RSUs are just one part of a broader, thoughtful plan for building lasting wealth.

Parkworth Wealth Management provides holistic wealth management services including financial planning, equity compensation planning, investment management, tax planning, and others, on a fee-only basis and as a fiduciary, acting in clients’ best interests. If you want help properly managing your RSUs and using them to build wealth, schedule a complimentary consultation.