RSUs vs. stock options: what's the difference?
by Malik Amine
Quick note
This is general education, not tax, legal, or investment advice. I'm not telling you to exercise, sell, hold, or give away anything.
It's usually more than one thing
A lot of people in tech get paid in some mix of salary, RSUs, and sometimes stock options. Then they talk about "my equity" like it's one thing. Usually it's a few different contracts, each with its own rules.
An RSU (restricted stock unit) is a promise to give you shares once they vest. A stock option, either an ISO or an NSO, is the right to buy shares at a set price, called the strike price. An ESOP balance is something else again: it's a retirement plan account. When you lump all of that together, it's easy to get surprised.
Vesting doesn't always mean you can sell
Vesting means you won't lose the grant if you leave. It doesn't mean you can sell. Shares at a private company can vest and still have no buyer. Shares at a public company can vest during a blackout period. And if you're an insider, your company's trading policy applies on top of all that.
How the taxes usually work
RSUs are usually taxed as regular income when they vest. Options work differently. Exercising is its own tax event, and exercising ISOs can trigger the alternative minimum tax. The withholding your company takes is usually a flat supplemental rate, and it's often less than what you'll actually owe.
If you want a real number, that's a conversation with a CPA who can see your grant documents, your other income, and your state's rules.
Watch how much of one company you own
Even after taxes, a lot of people end up with their salary, company stock in their 401(k), and a brokerage account full of the same stock. That's three ways of betting on one company. This is usually when people start hearing about direct indexing, charitable trusts, and scheduled sales. None of those is automatically the right move.
What to gather before you talk to anyone
- What kind of grant it is, the grant date, the vest dates, and the strike price if there is one
- The current share price or 409A value, and whether the company is public
- Your trading window, and whether you're covered by the insider policy
- Roughly how much cash an exercise would take, if you're even considering one
Bring that to your CPA or advisor. It makes the conversation a lot more useful.