When you need cash and hold both, the RSU vs stock options choice usually favors selling vested RSU shares first, because their income tax was already paid at vest. RSU shares were taxed as wages when they vested, so a later sale taxes only the growth since vest; an NSO's whole spread is taxed as ordinary income the day you exercise. In the hypothetical below, $100,000 of each leaves $97,000 versus $65,000 for a down payment.
The order flips on a deadline. If your options expire within about a year, or you plan to leave and your plan gives only 90 days to exercise, that tax bill is coming anyway. If you're 10 to 15 years from retirement, the choice also affects how much is left to compound. Modera Wealth Management works out what each grant would cost in tax before it suggests which one to cash in, and the five steps below show how to do the same. This is general education, not tax advice.
By David Okonkwo, ChFC — Retirement Planning Specialist | Reviewed by Robert Kim, AIFDavid helps pre-retirees navigate Social Security claiming decisions and Medicare timing to maximize lifetime benefits.
Hold options as long as possible is fine advice until someone gets laid off with a 90-day window. Then $200,000 of spread lands on one year's W-2.
CPA and Tax Director, Modera Wealth Management
Always compare your withholding with your real bracket. A 22 percent withholding on a 35 percent bracket leaves a 13 percent bill in April.
Senior Financial Planner, Modera Wealth Management
RSU income is taxed at vest; option income waits for exercise
People often say RSUs get taxed twice. They don't. The value of the shares on the day they vest is wages, reported once on your W-2. When you sell later, only the change since vest is a gain or loss. That vest-day value becomes your basis, meaning the starting number the IRS uses to measure your gain.
A nonqualified stock option (NSO) works the other way around. Nothing is taxed when the option vests. When you exercise, the spread, which is the share price minus your strike price, is wages. You also pay the strike to get the shares, though a cashless exercise lets the broker sell enough shares to cover it.
The downside differs too. An RSU share keeps value unless the stock goes to zero. An option priced below its strike is worth nothing, and it lapses at expiration. Incentive stock options (ISOs) follow separate alternative minimum tax rules, which the ISO exercise planning page covers. Everything below assumes NSOs.
Step 1: export every grant with its dates and prices
Start with a full export from your equity portal. For RSUs, you want every vest date and the share price on that date, because that's your basis. For options, you want the strike, grant date, expiration date (often ten years out) and the ISO or NSO label. Pull your W-2 too, plus the supplemental statement that arrives with the 1099-B in February.
The slip here is filing with the 1099-B basis alone. It often leaves out vest income already counted on your W-2, so the same dollars get taxed twice. Check the basis on Form 8949 against your own vest records before you file in April.
Step 2: will your options last 90 days or ten years after you leave?
Ask HR or the plan administrator three things in writing. What is the post-termination exercise window? Is cashless exercise allowed outside blackout periods? And how is withholding figured when you exercise? Each answer changes which grant you can safely hold.
Some answers should worry you. "Ninety days after your last day" puts a deadline on a decision you may not control, such as a layoff. "No cashless exercise" means you'd need cash for the strike on top of the tax. And "we withhold at the flat supplemental rate" is a problem if your own bracket is higher, because the gap shows up as a bill at the April deadline.
Say your plan withholds 22 percent but your top bracket is 35 percent. On a $100,000 spread, that's $13,000 you'll still owe, and it's due whether or not you kept any cash.
Step 3: price each grant at today's share price
The arithmetic is short, and you'll repeat it for your own grants. RSU value is shares times price. Option value is price minus strike, times the number of options. Tuan, a hypothetical 34-year-old staff engineer, holds 5,000 RSU shares and 10,000 NSOs with a $20 strike, and the stock trades at $40.
His RSUs are worth 5,000 × $40 = $200,000. His options are worth 10,000 × ($40 − $20) = $200,000. Equal on paper, very different after tax.
Step 4: which $100,000 should pay for Tuan's house?
For illustration, Tuan needs $100,000 for a down payment. He rents, has never sold a share, and about $900,000 of his $1.2 million net worth is employer stock. His RSU shares vested over a year ago at $32, so his basis is 5,000 × $32 = $160,000. He also holds the 10,000 vested NSOs.
Route one: sell 2,500 RSU shares at $40 for $100,000. The basis on those shares is 2,500 × $32 = $80,000, so the gain is $20,000. At an assumed 15 percent long-term rate, the tax bill is $3,000, and he keeps $97,000.
Route two: exercise 5,000 options and sell those shares. The spread is 5,000 × $20 = $100,000, and all of it is wages. At an assumed 35 percent, the tax bill is $35,000, and he keeps $65,000. The option tax isn't avoided by waiting; it's postponed, and it shrinks only if the stock falls.
Now a twin. A hypothetical teammate is identical to Tuan except that his options expire in ten months. That tax arrives within a year anyway, so he should exercise the options for the house and keep his already-taxed RSU shares.
Before Modera Wealth Management suggests which grant to cash in, it works out the tax on both routes and decides where the money sits. Down-payment cash belongs in a taxable savings or Treasury account until closing, not in stock. Shares and options can both lose value, and options can expire worthless. You can rerun Tuan's math with your own share count, strike and basis using the calculator on our site.
The main table below shows the row where the answer flips: the option route costs $35,000 against $3,000 for the RSU route, a $32,000 gap that disappears only when expiration forces your hand.
Two routes to the same $100,000
The twin whose options expire
When you need cash and hold both, sell RSU shares held more than a year first. Switch the order only when your options expire, or your post-leave exercise window closes, within about a year.
| Choice | Tax bill | Cash for the house | Stock risk left |
|---|---|---|---|
| Sell 2,500 RSU shares | $3,000 | $97,000 | All 10,000 options kept |
| Exercise and sell 5,000 options | $35,000 | $65,000 | All 5,000 RSU shares kept |
| Half from each | $19,000 | $81,000 | Both cut by half |
Is waiting a mistake if your options expire within two years?
Yes, if you assume time is on your side. Options that expire within two years leave you few chances to spread the tax, and a lapse costs the whole spread. Three timing errors cause most of the damage.
Too early: selling RSU shares within a year of vest turns the growth into a short-term gain, taxed at ordinary rates. Too late: options lapse at expiration, or 90 days after you leave if the plan says so. Wrong order: exercising NSOs in the same year as a heavy RSU vest stacks both on one W-2.
Generic advice says to hold options as long as possible. Followed too literally, that costs people who leave. If Tuan quits in 18 months under a 90-day window, he must exercise all 10,000 options in one quarter. That adds $200,000 of wages in one year, about $70,000 at an assumed 35 percent, or he lets $200,000 of value lapse.
If you're 10 to 15 years from retirement, spread exercises across several years. From age 50, an extra $8,000 catch-up can go into the 401(k) in the years you exercise, on top of the IRS 2026 deferral limit of $24,500.
Step 5: run this six-line check against your own accounts
Run these lines against your portal and your last tax return. Any line you can't answer is the one to chase first.
- Vest dates more than one year ago
- Option expiration and post-leave window
- ISO or NSO label per grant
- Strike compared with today's price
- Withholding compared with your real bracket
- Employer stock as a share of net worth
Can you undo an exercise once the shares land?
No. An exercise is final once processed, and the strike you paid and the tax on the spread stay. A sale can be offset only by buying the stock back, which starts a new basis and a new holding period. A loss sale bought back within 30 days is disallowed under the IRS wash-sale rule.
What stays flexible is everything you haven't touched: unexercised options and unsold RSU shares. Before the next quarterly vest or open trading window, you can still change which grant pays for the next goal.
This comparison assumes NSOs at a public company with cashless exercise and the assumed rates shown. Any of these changes the answer and needs its own numbers: ISOs, private-company options that need cash for the strike, state income tax, or RSU shares now below their vest price. No investment is guaranteed, and you could end up with less than you put in.
Bring your vest history and option expiration dates to Modera Wealth Management
Talk with Modera Wealth Management before you sign a purchase contract, ideally before the next open trading window. Bring the equity portal export, your last W-2, the latest 1099-B with its supplemental statement and the mortgage pre-approval amount. For the wider picture, see our pages on concentrated stock diversification and RSU tax planning.
Options aren't cheaper to cash in; their tax is just postponed until you exercise.
What people ask about RSU vs stock options
How much tax is withheld when I exercise nonqualified stock options, and is it usually enough?
Many plans withhold at the flat federal supplemental rate, which is often 22 percent on the spread. If your marginal bracket is 32 or 35 percent, the withholding falls short and the gap is due in April. Ask your plan administrator which rate it uses before you exercise.
How long do I have to exercise vested stock options after I leave my job?
It's set by your plan, and it's often 90 days after your last day. Some plans allow longer, and expiration still caps it at the original term, often ten years from grant. Get the exact window in writing from HR before you give notice.
Can I move RSU shares or stock options into an IRA or Roth IRA?
No. You can't transfer RSUs or options into an IRA. You can sell, then contribute cash up to the IRS limit of $7,500 for 2026, if you qualify. Where the cash lands matters, which is why asset location is part of the decision.
If I exercise options and the stock drops the next week, can I reverse the exercise?
No. Once processed, an exercise is final. You owe tax on the spread as of the exercise date, even if the shares fall afterward. If you sell at a loss, that loss can offset gains, subject to IRS limits and the 30-day wash-sale rule.
Are RSUs worth more than stock options if my company's share price stays flat for five years?
Usually yes. Flat shares leave RSUs with their full vest-date value, while options only gain by the spread above strike, and that doesn't grow if the price is flat. Options also keep ticking toward expiration, so a flat price can still end in a lapse.
When does selling RSU shares count as a long-term gain instead of short-term?
Once you've held the shares more than one year after the vest date. Long-term gains get lower rates than ordinary income. In Tuan's example, 15 percent applies after a year, while a sale within a year would be taxed like wages.
Read the rules at the source
This is general information, not advice for your specific situation. Investing involves risk, including loss of principal. Nothing here replaces guidance from a tax professional or attorney. Talk to a qualified adviser before you act.