You’re our first priority.
Every time.

NerdWallet, Inc. is an independent publisher and comparison service, not an investment advisor. Its articles, interactive tools and other content are provided to you for free, as self-help tools and for informational purposes only. They are not intended to provide investment advice. NerdWallet does not and cannot guarantee the accuracy or applicability of any information in regard to your individual circumstances. Examples are hypothetical, and we encourage you to seek personalized advice from qualified professionals regarding specific investment issues. Our estimates are based on past market performance, and past performance is not a guarantee of future performance.

We believe everyone should be able to make financial decisions with confidence. And while our site doesn’t feature every company or financial product available on the market, we’re proud that the guidance we offer, the information we provide and the tools we create are objective, independent, straightforward — and free.

So how do we make money? Our partners compensate us. This may influence which products we review and write about (and where those products appear on the site), but it in no way affects our recommendations or advice, which are grounded in thousands of hours of research. Our partners cannot pay us to guarantee favorable reviews of their products or services. Here is a list of our partners.

RSUs Vs. Stock Options: What’s the Difference?

RSUs and stock options differ significantly in how they’re granted and taxed, as well as the level of risk to investors.

Many, or all, of the products featured on this page are from our advertising partners who compensate us when you take certain actions on our website or click to take an action on their website. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money.

The investing information provided on this page is for educational purposes only. NerdWallet, Inc. does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.

Updated Oct 27, 2025 · 2 min read

How is this page expert verified?

NerdWallet's content is fact-checked for accuracy, timeliness and relevance. It undergoes a thorough review process involving writers and editors to ensure the information is as clear and complete as possible.

Understanding RSUs and stock options

RSUs and stock options are types of equity compensation that employers may offer to attract and retain talented employees. The value of these incentives is tied to the company’s stock performance, which help to align workers’ interests with the company. If the company succeeds, workers holding company stock may also benefit.

What are restricted stock units?

With restricted stock units, or RSUs, a company agrees to give shares to the employee over the course of a vesting period, and perhaps after meeting other stipulations

With restricted stock units, or RSUs , a company agrees to give shares to the employee over the course of a vesting period, and perhaps after meeting other stipulations IRS. Equity (stock)-based compensation audit technique guide. Accessed Oct 27, 2025. . Once the shares vest — typically in batches over several years — ownership of the shares transfers to the employee at no out-of-pocket cost. At that point, the employee can opt to sell or hold the shares.

» Estimate the value of your shares with our RSU calculator

» Estimate the value of your shares with our » Estimate the value of your shares with our RSU calculator

What are stock options?

With stock options, a company promises to sell a certain number of shares to an employee at a set price, known as the strike price

With stock options, a company promises to sell a certain number of shares to an employee at a set price, known as the strike price National Archives and Records Administration. 26 CFR § 1.422-2. Accessed Oct 27, 2025. . Stock options also tend to have a vesting period. Once the shares vest, the employee has the right to purchase those shares at the strike price. This step is known as exercising the options , and it can occur any time until the options expire (typically up to 10 years after the options are granted).

There are two kinds of stock options.

Incentive stock options, or ISOs, can only be granted to employees and must meet certain statutory requirements. They have certain tax benefits

Incentive stock options, Incentive stock options, or ISOs , can only be granted to employees and must meet certain statutory requirements. They have certain tax benefits IRS. Topic no. 427, Stock options. Accessed Oct 27, 2025. .

Non-qualified stock options, or NSOs, can be granted to non-employees, such as advisors or board directors. But they don’t enjoy the tax benefits of ISOs.

Non-qualified stock options, Non-qualified stock options, or NSOs , can be granted to non-employees, such as advisors or board directors. But they don’t enjoy the tax benefits of ISOs.

» MORE: How stock option taxes work

» MORE: » MORE: How stock option taxes work

RSUs vs. stock options

Consider the key differences between RSUs and stock options.

Restricted stock units (RSUs)

Stock options

Are there upfront costs?

No. Employees receive shares once they vest.

No. No. Employees receive shares once they vest.

Yes. Employees receive the right to purchase shares at a set price once they vest.

Yes. Yes. Employees receive the right to purchase shares at a set price once they vest.

What are the typical stages?

Grant

Vesting

Transfer

Sale

Grant

Vesting

Exercise

Sale

What is the value based on?

The market price. Because you don’t pay to acquire the shares, they’ll always have some value, unless the share price of your company goes to $0.

The market price. The market price. Because you don’t pay to acquire the shares, they’ll always have some value, unless the share price of your company goes to $0.

The bargain element — that is, the difference between the strike price and the market value of the shares at the time they’re exercised. Because you pay to acquire the shares, they’ll only have value if the strike price is lower than the market price.

The bargain element The bargain element — that is, the difference between the strike price and the market value of the shares at the time they’re exercised. Because you pay to acquire the shares, they’ll only have value if the strike price is lower than the market price.

How are they taxed?

The market value of the vested shares is taxed as ordinary income.

You may also be taxed on any capital gains when you sell.

ISOs: Taxes are deferred until you sell your shares, though you may face alternative minimum tax at the time you exercise.

ISOs: ISOs: Taxes are deferred until you sell your shares, though you may face alternative minimum tax at the time you exercise.

If you meet certain holding period requirements when you sell, any profit from the sale may be taxed at the typically lower capital gains tax rate.

NSOs: The bargain element is taxed as ordinary income.

NSOs: NSOs: The bargain element is taxed as ordinary income.

You may owe capital gains tax when you sell.

When are taxes owed?

When the shares vest. This means employees don’t have the ability to time the tax event. You may also owe capital gains tax later if you sell the shares.

When the shares vest. When the shares vest. This means employees don’t have the ability to time the tax event. You may also owe capital gains tax later if you sell the shares.

When you exercise your options. This means employees have some ability to time the tax event. You may also owe capital gains tax later if you sell the shares.

When you exercise your options. When you exercise your options. This means employees have some ability to time the tax event. You may also owe capital gains tax later if you sell the shares.

Do they expire?

No. Any vested RSUs remain yours, even after you leave the company.

No. No. Any vested RSUs remain yours, even after you leave the company.

Yes. Options typically must be exercised within 10 years from the date they’re granted. When you leave a company, you may have to exercise any vested options within 90 days.

Yes. Yes. Options typically must be exercised within 10 years from the date they’re granted. When you leave a company, you may have to exercise any vested options within 90 days.

What’s the risk level?

Lower risk because they require no upfront cost and will retain some value unless the share price goes to $0.

Lower risk Lower risk because they require no upfront cost and will retain some value unless the share price goes to $0.

Higher risk because they require some upfront cost, could expire, and could lose all value if the market price is lower than the strike price.

Higher risk Higher risk because they require some upfront cost, could expire, and could lose all value if the market price is lower than the strike price.

Ask an advisor: Which is better?

Stock options and RSUs each have their advantages and disadvantages. But there could be circumstances in which one is more helpful than the other, says Daniel Messeca, a certified financial planner and co-founder of Craftwork Capital in Alexandria, Virginia.

RSUs follow predictable timelines. They’re not risk-free but they’re less risky because the employee doesn’t have to buy shares like they do with stock options and will retain some value unless the share price goes to $0. That makes them a potential source of cash to meet your financial goals. “If I'm trying to fund education for my children, I know when an RSU vests, I have the net of those shares, I can sell them right away and pay for school or invest them in another fund,” Messeca says.

But if your equity compensation acts more like a bonus or a potential windfall — something you’re not counting on to meet day-to-day needs — the reward can be worth the risk. That’s why startups and other companies with high-growth potential might use stock options to attract top talent.

“If I'm in the investor mindset and in good shape, doing everything I need to do, maybe I'm more willing to focus my efforts on options because my potential upside is very large there,” Messeca says.

Other considerations for RSUs and stock options

While the risk associated with RSUs and stock options may be a key factor to weigh, it’s not the only one. To assess the value of RSUs or stock options from your employer (or prospective employer), gather the specific details of the plan, including:

The value of the company today. This can give you an idea of what your equity compensation might be worth. Though it’s important to keep in mind that the value likely will change during the vesting period.

The value of the company today. The value of the company today. This can give you an idea of what your equity compensation might be worth. Though it’s important to keep in mind that the value likely will change during the vesting period.

The vesting schedule. You’ll want to know when you actually gain a right to the shares.

The vesting schedule. The vesting schedule. You’ll want to know when you actually gain a right to the shares.

How readily you could sell the shares. In public companies, selling shares is pretty straightforward. But private companies might have additional stipulations or fewer opportunities to sell any stock you acquire. It could make the tax implications more or less attractive.

How readily you could sell the shares. How readily you could sell the shares. In public companies, selling shares is pretty straightforward. But private companies might have additional stipulations or fewer opportunities to sell any stock you acquire. It could make the tax implications more or less attractive.

And for options, be sure to assess:

The strike price and how it compares to the current value.

The strike price The strike price and how it compares to the current value.

Whether it’s an ISO or NSO. That will affect how your shares are taxed.

Whether it’s an ISO or NSO. Whether it’s an ISO or NSO. That will affect how your shares are taxed.

Whether your company offers cashless exercising. Some companies permit employees to exercise their options without paying any upfront costs. Instead, the company is reimbursed out of the proceeds of the stock sale.

Whether your company offers cashless exercising. Whether your company offers cashless exercising. Some companies permit employees to exercise their options without paying any upfront costs. Instead, the company is reimbursed out of the proceeds of the stock sale.

» Need help? View a full list of the best financial advisors

» Need help? » Need help? View a full list of the best financial advisors best financial advisors

Learn 5 common restricted stock mistakes investors make, and how to avoid them to help protect your wealth.

GET THE FREE GUIDE

on NerdWallet Wealth Partners' website. For informational purposes only. NerdWallet Wealth Partners does not provide tax or legal advice.

Article sources

NerdWallet writers are subject matter authorities who use primary, trustworthy sources to inform their work, including peer-reviewed studies, government websites, academic research and interviews with industry experts. All content is fact-checked for accuracy, timeliness and relevance. You can learn more about NerdWallet's high standards for journalism by reading our editorial guidelines. IRS. Equity (stock)-based compensation audit technique guide. Accessed Oct 27, 2025. National Archives and Records Administration. 26 CFR § 1.422-2. Accessed Oct 27, 2025. IRS. Topic no. 427, Stock options. Accessed Oct 27, 2025. About the author Taryn Phaneuf Taryn Phaneuf Taryn Phaneuf is a lead writer and content strategist covering wealth management, financial planning and other investing topics. She previously covered personal finance news. Taryn joined NerdWallet in 2022 after reporting on business, education and public policy for more than a decade. See full bio.

ON THIS PAGE

Understanding RSUs and stock options Understanding RSUs and stock options RSUs vs. stock options RSUs vs. stock options Ask an advisor: Which is better? Ask an advisor: Which is better? Other considerations for RSUs and stock options Other considerations for RSUs and stock options More like this Investment Basics Investing How Much Does a Financial Advisor Cost? Most financial advisors charge based on how much money they manage for you. Fees are typically 1% a year but can be lower. 2 By Andrea Coombes, Taryn Phaneuf Do You Need a Financial Advisor? 7 Ways to Tell You may need a financial advisor if you're facing big life changes, don't have financial goals, have complex compensation, high tax bills or for other reasons. Taryn Phaneuf How to Find Cheap or Free Financial Advice Quality financial advice is more accessible than ever — and much of it is free or inexpensive. Here's how to get it. Anna-Louise Jackson 3 Steps to Prepare for Your First Financial Advisor Meeting Here's what think about and bring to your first meeting with a financial advisor. June Sham

RSUs Vs. Stock Options: What’s the Difference?

You’re our first priority. Every time.

RSUs Vs. Stock Options: What’s the Difference?

Understanding RSUs and stock options

What are restricted stock units?

What are stock options?

RSUs vs. stock options

Ask an advisor: Which is better?

Other considerations for RSUs and stock options

You’re our first priority.
Every time.