RSUs vs. Stock Options: What’s the Difference and Which Is Better?
If you’re receiving restricted stock units (RSUs) or stock options from your employer — or evaluating multiple job offers that include equity compensation — it’s essential to understand how these benefits work. Equity-based compensation can make up a large portion of your total pay package, but the way RSUs and stock options function, their tax implications, and their potential value differ significantly.
“Both are great ways to get upside exposure to the company you’re working for,” says Daniel Messeca, certified financial planner and co-founder of Craftwork Capital in Alexandria, Virginia. “But it’s apples and oranges.”
Understanding how each type of equity compensation works can help you determine which one may be a better fit for your personal goals and financial situation.
What Are RSUs and Stock Options?
RSUs and stock options are forms of equity compensation offered by employers to attract, retain, and reward employees. Their value is linked to the company’s stock performance, aligning your success with that of the company.
What Are Restricted Stock Units (RSUs)?
Restricted stock units are a promise by the company to give you shares in the future, typically after you meet certain conditions like remaining employed for a set period (a vesting schedule). Once your shares vest, they become yours — at no cost to you. You can then hold or sell the shares.
What Are Stock Options?
Stock options give you the right to buy a set number of company shares at a predetermined strike price, once they vest. You can exercise your options and purchase those shares anytime before they expire — typically within 10 years of the grant date.
There are two primary types of stock options:
Incentive Stock Options (ISOs): Only for employees and come with favorable tax treatment if certain conditions are met.
Non-Qualified Stock Options (NSOs): Can be granted to non-employees (like advisors) but don’t carry the same tax benefits as ISOs.
RSUs vs. Stock Options: A Side-by-Side Comparison
Feature RSUs Stock Options
Upfront Cost? No — you receive shares once they vest. Yes — you must pay the strike price to exercise.
Typical Stages Grant → Vest → Transfer → Sell Grant → Vest → Exercise → Sell
Value Based On Market price at vesting (always has some value unless stock hits $0). Difference between strike price and market price at exercise (only valuable if stock price exceeds strike price).
Tax Treatment Vested shares taxed as ordinary income. Capital gains tax may apply when sold. ISOs: Deferred tax until sale, with potential AMT at exercise. NSOs: Bargain element taxed as ordinary income. Capital gains may apply when sold.
When Are Taxes Due? At vesting — no flexibility to time the event. At exercise — allows some control over timing.
Do They Expire? No — vested RSUs remain yours, even after leaving the company. Yes — usually expire within 10 years, and often must be exercised within 90 days of leaving.
Risk Level Lower — no upfront cost, always has some value. Higher — upfront cost, risk of expiring worthless.
RSUs vs. Stock Options: Which Is Better?
Both equity types offer potential rewards, but their benefits depend on your financial situation, says Messeca of Craftwork Capital.
Scenario A: You Need the Money
Better Choice: RSUs
Why: RSUs have predictable vesting timelines and retain their value. “If I’m trying to fund education for my children, I know when an RSU vests, I have those shares, and I can sell them to cover expenses or reinvest,” says Messeca.
Scenario B: You’re Comfortable Taking Risks
Better Choice: Stock Options
Why: Stock options are often “high-risk, high-reward,” making them attractive if you don’t need immediate liquidity and want a shot at a bigger payoff — especially with startups. “If I’m in a strong financial position, I might prefer options because the potential upside is larger,” Messeca adds.
Additional Considerations for RSUs and Stock Options
When deciding between RSUs and stock options — or managing the ones you have — gather specific details:
Current Company Valuation: Helps you estimate what your equity might be worth (though this may change by the time your shares vest).
Vesting Schedule: Know exactly when you gain ownership or the right to exercise.
Liquidity Options: Selling shares in a public company is easy. In a private company, fewer options may exist, impacting your decision to exercise or hold.
For stock options, also consider:
Strike Price vs. Current Value: The lower the strike price relative to market value, the more favorable.
Type (ISO vs. NSO): This impacts tax treatment.
Cashless Exercising: Some companies let you exercise without upfront payment by using sale proceeds to cover the cost.
Equity compensation can be a powerful financial tool, but it’s not one-size-fits-all. Make sure you understand what you’re being offered — and talk to a tax professional or financial advisor if needed.
More from CreditVana: Explore how to evaluate a job offer’s equity package
