By Mike Gibbons, RICP®

One of the most significant compensation differences for any new Abbott Laboratories/AbbVie employee is equity compensation. For Abbott Laboratories/AbbVie, this comes in the form of restricted stock units (RSUs). While multifaceted, these semi-complex structures can be broken down into simpler parts to provide a thorough understanding of how they can align with your overall financial plan. We will try to “demystify” RSUs here today so you can make the most informed decisions for your finances.

What Are RSUs?

RSUs are a type of equity compensation that is subject to a vesting schedule. With the Abbott RSU plan, the company promises shares of company stock to employees, which they will earn over time by reaching certain performance milestones or years of service to the company. Once an RSU has become fully vested, it is converted to stock. 

How Are RSUs Taxed?

RSUs come with their own set of tax consequences, so it’s important to understand how they can affect your overall wealth management plan.

Two tax structures come into play with RSUs:

1. First, you are taxed on the shares when they are converted to stock.

2. Then you are taxed on any gains that occur after the shares are sold.

The fair market value of the converted shares is considered compensation and will be taxed at your marginal tax rate. Proper planning around RSU vesting can help prevent you from being pushed into the next tax bracket. For instance, if you expect a large portion of your RSUs to vest in a certain year, you can defer other income to avoid an inflated tax bill.

Thinking through what to do with the stock once it has become available is another important consideration when planning for RSUs. If the stock is sold within one year of the conversion date, it will result in a short-term capital gain which is taxed as ordinary income. Holding the stock for at least a year, however, will allow any gain to be taxed as a long-term capital gain, which is taxed at a preferential rate topping out at 20%. 

Proactive planning can help you decide which option makes more sense based on your unique financial needs.

Other Considerations

There’s more than just taxes to consider when RSUs are a main component of your compensation package. Here are some other points to keep in mind as you navigate your RSUs.

Titling

By default, all RSUs (and any other company stock awards) are issued to one individual employee. This can create complications for your loved ones if you were to pass away without a will or if your will is contested. 

Instead, consider titling the shares as joint tenancy with the right of survivorship (JTWROS) between you and your spouse or loved one. This layer of legal protection is stronger than listing an heir on your will as it causes ownership to pass automatically to the joint tenant without going through probate. Keep in mind that it is the responsibility of the employee to enlist proper titles of stock awards.

Get Your Dates Organized

If you’re like many executives, you may have received a variety of restricted stock units at different times and for different amounts. Being organized is crucial if you want to make the most of your RSUs. Don’t leave money on the table by losing track of your vesting dates.

Don’t Forget to Diversify

RSUs are a great benefit, but it’s important to assess your overall risk level when you own large amounts of company stock. If it makes up more than 10% of your total investable assets, you are considered to be in a highly concentrated stock position. Don’t forget to diversify your portfolio as your RSUs vest.

How We Can Help

At Gibbons Financial Group, we can help Abbott employees make the right decisions when it comes to their RSUs. To learn more about our process and how we can help, call 224-419-5550 or email me at Mike@gibbonsfinancialgroup.com to schedule a complimentary consultation. And be sure to join our free webinar, Retiring Early From Pharma.

About Mike

Michael J. Gibbons is founder and president of Gibbons Financial Group, an independent advisory firm providing custom-tailored financial planning and investment management services to pharmaceutical and healthcare professionals and their families. Mike has over 25 years of experience and spends a significant portion of his day working with pre-retirees and retirees, focusing on asset management, Social Security and pension planning, as well as retirement income preparation. 

Mike has degrees in both business and psychology from Lake Forest College and currently holds his Retirement Income Certified Professional (RICP®) designation from the American College. Mike was named a Five Star Wealth Manager for 2016 and 2018* Mike is heavily involved in his community, having served on the Village of Gurnee Police Pension Board as a Community Volunteer and the St. Patrick’s Parish Financial Board. When he’s not working or volunteering, Mike loves playing golf and spending his time with his wife and children. To learn more about Mike and how he can help you, connect with him on LinkedIn, visit his website, and register for his free webinar, Retiring Early From Pharma, created specifically for professionals retiring from the pharmaceutical, biotechnology, and healthcare industries.

*Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2016/2018 Five Star Wealth Managers.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.