RSUs are Restricted Stock Units your company is an offering made (‘grant’) as part of an incentive to build company value. One unit’s value equals one share of stock’s value and these units are released to you in ratable chunks over time (‘vesting’) during employment. When one unit is released to you, you receive one share of company stock. Twilio RSUs vest quarterly.
RSUs are taxed like your salary and wages (at ordinary tax rates). This income, and any tax withheld, is reported on your IRS Form W-2 in the year the units vest to you.
Federally, RSU income is withheld at a flat 22% until you reach $1M in stock compensation income in a calendar year. If you expect your effective tax rate to be higher, you will owe taxes at the end of the year on this RSU income (assuming no estimated tax payments were made during the year). State withholding varies by location.
For more information, check out my article Offer Letter Basics: RSUs
If you’ve been around with Twilio for a while, you may still have ISOs to exercise. ISOs are “Incentive Stock Options” that were created with some special benefits if you exercise and hold 2 years from grant date / 1 year from exercise date. However, the down side is Alternative Minimum Tax (“AMT”) that may be due at exercise. What is AMT? Learn more about it HERE.
There is definitely a balance of not letting the tax tail wag the dog and not having your eggs all in one basket. We tend to look at a laddered approach of spreading these out while you plan to stay with the company or at times of big stock drops. However, if you plan to leave your company soon, you will not be able to keep the options past 60 days and you will need to decide what to exercise/sell and what to exercise to keep for a bit.
Then, once you start making moves, make sure you are aware of alllll the tax fun. Some states have an Alternative Minimum Tax (“AMT”), just like our Federal AMT. Make sure you know what you are paying between taxes and exercise costs. Are you ready to take the risk?
Twilio offers target date funds, index tracking options and specialty options. We are huge fans of Vanguard and we are so glad to see them included.
Twilio offers employees the usual 401(k) contribution options and an after-tax 401(k) contribution option as well! This strategy is also known as “mega backdoor Roth” or “mega Roth conversion”. In essence, it enables you to make a large after-tax contribution to your 401(k) plan then convert to a Roth to grow tax-free over time. Although the after-tax 401(k) option may change with future legislation, it can be a great way to grow your retirement investments.
As always, please remember to review your beneficiary information annually to ensure it matches with your wishes!
Another way to consider augmenting your investments is through utilizing the discount available for purchasing company shares. We are big proponents of locking in the gain immediately since it is still a win. However, this may reduce cash flow significantly on a monthly basis to max it out. You should consider your current bandwidth and comfort level since your choice cannot be changed until the next enrollment period for the ESPP plan.
Group Legal Plan: This provides some coverage for law office services, including lease agreement reviews and living trust documents. How does it work? Similar to health insurance and physicians, small law offices contract with the group legal plan provider at specific rates to be able to work with you. Unlike health insurance, the network may or may not have many attorneys in your area or may not be of the value you hoped for. We recommend looking up reviews of other employees’ experiences before deciding whether to move forward with this plan.
Disclosure: Recommendations are of a general nature above and are not based on knowledge of any individual’s specific needs or circumstances. There is no intent to provide individual investment advisory, supervisory or management services.