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Google RSU and 401k: What You Need To Know Thumbnail

Google RSU and 401k: What You Need To Know

5 MIN READ

Google is known for taking care of its employees and not just physically or emotionally - they care for their employees’ well-being too. Google does this by offering financial benefits including a 401K match, a deferred compensation plan to decrease taxes on bonuses, and with Google RSUs.

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What is a Google RSU?

Google offers employees Google RSUs as a part of their compensation package. A GSU is a certificate that entitles you to Alphabet Inc. capital stock. One RSU equals one share of Google stock, however, your certificate isn’t worth anything until your units vest, which occurs according to Google’s vesting schedule which we discuss below. 

You can determine the value of your GSU by taking the intended value as defined in your offer letter divided by the current closing price of Alphabet Class C capital stock. You’ll use the value of the stock on the date just before your grant date. Class C shares of stock are those typically held by employees without voting rates. They may be inexpensive to purchase at first but will have higher fees in the long-term.

For example, let’s say your intended value as defined in your letter is $50,000, and the current price on the date before your grant date is $1,600. You would have 31.25 GSUs. 

You’d then receive the percentage as outlined in your offer letter of the vested GSUs. If your initial vesting is 25%, you’d receive 8 GSUs or 8 shares after the initial 12-month cliff period. 

A cliff refers to when the first portion of your option grant vests. During this time period, you must stay at the company in order for any portion to vest. After the initial time period, it’s common for your remaining options to vest at a rate of each month or each quarter.

For example, if your cliff period is up and you have the option to exercise 8 shares at the grant price ($1,600) and the current price is $2,000, you would pay $12,800 but have $16,000 vested.

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Things you need to know about Google Restricted Stock Units

First, it’s most important to note that Google Restricted Stock Units are not stocks until you are vested. The certificate is an offer of a benefit, but it’s worth nothing unless you’re employed on the vesting date. 

Google provides the RSUs in a brokerage account. Once you’re vested, you are free to do what you want with the shares. If you want to sell them, you can just make sure you’re aware of the tax implications that occur with capital gains. We discuss additional information on your tax impacts below. However, it’s best to talk to your tax advisor before making any changes.

Other things to know about Google RSUs

  • You must stay employed to receive your vested shares. If you leave the company before you’re vested, you lose the shares.

  • Your shares are worth the current price. If the price happens to drop the day before your vesting date, you get the lower value. 

  • You can keep the stock as long as you want. If you do accumulate them at a lower value, you can keep the stock and wait for it to increase. 

  • If you keep the RSUs for longer than one year, you’re taxed at the long-term capital gains rate, which is lower than most ordinary tax brackets. 

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Google RSU Vesting Schedule

Google operates on a 4-year vesting schedule. You must be at Google for at least 12 months before the first vesting date.

At your first vesting date, you receive 25% of your RSUs. You then receive an additional 25% each year after that date. 

Related Article | 5 Things to Know About Your Restricted Stock Units

Understanding Your Tax Impacts as a Google Employee

Your Google RSUs create a tax liability a few times.

  1. You’ll pay taxes upon initial vesting. Google will withhold 22% of your vested amount back for taxes. However, this may or may not cover your full tax liability. It’s important to talk with your tax advisor about the liability to make sure you’re prepared at tax time should you owe more.

  1. You’ll pay taxes anytime you trade the stocks too. If you immediately sell the stock when you become vested, you’ll pay capital gains on the difference between the sales price and original vested price. If you wait a few years, you’ll still pay taxes, but possibly at a lower tax bracket as it becomes a long-term capital gain. 

For example, if you are an employee who is awarded $1,000 RSUs at no cost, here is what your tax liability will look like after vesting and making a sale. You will pay ordinary income taxes from fair market value (FMV) at the grant price ($1) until the FMV at vesting ($3). Between FMV at vesting and FMV at the sale ($10), you will pay capital gains taxes.

As of 2020, this graphic represents the capital gains rates you can expect to pay based on the amount of time you have held the shares. The short-term capital gains tax rate is based on holding the shares for less than or equal to one year. The long-term capital gains tax rate is based on holding the shares greater than one year.

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Understanding Your Google 401k Match

Google supports its employees even more by providing a dollar-for-dollar match on your 401K contributions up to $3,000 or a 50% match on contributions up to $9,000. Your matched contributions are fully vested right away. If you left Google, you could take your contributions and the matched contributions with you either rolling them over or withdrawing them, but this incurs a 10% penalty plus taxes.

Related Article | What Is The Difference Between A 401K And An IRA?

Know the Value of your Google Benefits

Google pays well, but sometimes pay means more than the monetary compensation they provide. The financial benefits Google offers help employees in more ways than one. Know the value of the benefits they offer you including your Google RSU benefits, 401K match, and other financial benefits that stack up, helping you and your family while you work for one of the most amazing companies in the United States. 

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