Your Cheat Sheet To Microsoft RSUs
As a Microsoft employee, one of the key elements of your compensation plan are your stock awards - aka restricted stock units (RSUs). This program provides workers with an equity stake in the company, as a form of regular compensation and as an incentive for going above and beyond. RSUs are promised to employees on what is known as the “grant date”, and they do not taken ownership until a future point referred to as the “vest date.”
Microsoft RSUs can be extremely beneficial if you know what steps to take. Keep reading for a complete guide.
Does Microsoft Give RSUs To Employees?
As is the case for many large tech companies, Microsoft provides a large percentage of its employee benefits in RSU form. There are several points where you may be eligible for RSUs from Microsoft:
The first RSUs you’ll receive as a Microsoft employee will likely come as an on-hire stock award. These will be included as part of your hiring package.
People working at Microsoft are also eligible for annual stock awards each August. These are typically granted after performance reviews take place.
Leadership stock awards and special stock awards are available to people on the management level and employees who do exceptionally well, respectively.
How Many RSUs Do Microsoft Employees Get?
You won’t receive a predetermined number of RSUs while working for Microsoft. Instead, you can expect your RSU awards to vary based on a number of factors, such as your job level and overall performance. Higher levels (64, 65, 66, etc) receive greater RSUs, as a percentage of overall compensation.
Of course, you’ll need to remember that being granted RSUs does not immediately equate to holding ownership in the associated positions. You have to wait until they vest in order to put them to use.
When Do the RSUs Vest?
If you’re trying to create a plan for your RSUs, it’s crucial to familiarize yourself with the Microsoft stock vesting schedule:
On-hire stock awards have a vesting rate of 25% per year, with the first vest occurring one year after you start at Microsoft.
The vesting rate for annual stock awards is 20% per year. In contrast to on-hire RSUs, these awards start vesting one quarter after they’re granted–that means RSUs granted on August 31 will begin to vest on November 30.
Special stock awards and leadership stock awards don’t follow either of these schedules, so you’ll need to handle them on a case-by-case basis.
What Can Be Done with RSUs After They Vest?
When your shares finally vest, they’ll be sent to your preset brokerage account. Microsoft employees have a choice between Morgan Stanley or Fidelity.
Once your vesting date arrives, the first thing you’ll need to focus on is taxes. While you’ll get control over the positions associated with your RSUs, you’ll also be taxed on their value as earned income.
By default, Microsoft has a 22% “sell-to-cover” election–that means 22% of your shares will be sold and submitted for federal taxes. When that’s taken care of, it’s time to decide what you want to do with your RSUs. Some popular options include:
Boosting your 401(k) contributions. Since you now have additional stock income, you can use cash compensation to increase 401k contributions, taking advantage of valuable tax benefits. You’ll need to understand the contribution limits and investment options associated with these funds, so it’s wise to do some research first.
Adding to a 529 account. Funds deposited into 529 accounts can cover a wide range of education-related expenses, from K-12 tuition costs to most college expenses.
Diversify. For many long-time Microsoft employees, they have watched their RSUs become a larger portion of their overall net worth. This can present a financial risk, by having too much of your net worth & financial plan dependent on a single stock. Investors should work with their financial advisor to determine how much stock they should hold, and how much to diversify.
Making Charitable Contributions. Many Microsoft employees choose to financially support non-profit organizations that are important to them, and Microsoft provides valuable charity matching funds as well. Investors have the option to donate stock to non-profits, which could provide valuable tax benefits.
Though it isn’t technically related to RSUs, Microsoft’s employee stock purchase plan (ESPP) is also worth looking into. Through this plan, you can contribute up to 15% of your cash compensation or $25,000 - whichever is lower.
Take the Right Path
RSUs aren’t the only form of compensation you’ll get from Microsoft, but they’re something you can’t afford to ignore. By knowing when your Microsoft RSUs will vest and having a strategy in place, you’ll be ahead of the curve.
However, even if your investment strategy sounds safe on paper, it could have unforeseen consequences if you aren’t careful. The best way to avoid unpleasant surprises related to your finances is to work closely with trustworthy financial advisors.
If you’re looking for jargon-free financial planning services that specialize in the tech industry consider Consilio Wealth Advisors. They make decisions from a fiduciary standpoint, and can be invaluable to your financial future.
Disclosures:
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
Consilio Wealth Advisors, LLC is not associated with Microsoft or any of its subsidiaries. Information for this article is gathered from existing clients and information available online. This article is not meant to be an endorsement by Microsoft.
Consilio Wealth Advisors, LLC (“CWA”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where CWA and its representatives are properly licensed or exempt from licensure.
