RSUs vs stock options

They're both equity, but they behave almost oppositely. One costs nothing but is taxed as income; the other you pay to exercise but can be more tax-efficient. Here's the difference.

The short version

RSUs are free shares you receive on vesting (plus, privately, a liquidity event) and are taxed as ordinary income on their full value. Stock options cost the strike price to exercise, risk your cash, but can offer better tax and are only worth exercising if the company grows.

Side by side

	RSUs	Stock options
Cost to you	Nothing to receive	Pay the strike price to exercise
Risk	Always worth something if shares have value	Can expire worthless if underwater
Tax	Ordinary income on full value at settlement	Tax on the spread; ISOs can get capital-gains treatment
At a private company	Usually double-trigger — no shares until exit	Can often exercise early into real shares
Can you sell early?	Rarely — no shares held yet	Sometimes, after exercising, subject to rules

What it means when you sell

At a private company, options are more likely to give you something sellable — you can exercise into real shares (at a cost). Double-trigger RSUs usually can't be sold until the company exits, because you don't hold shares yet. Confirm which you have before assuming a secondary is possible.

Neither is simply 'better': options offer leverage and tax efficiency with risk and cost; RSUs offer certainty with less upside and immediate income tax.

Frequently asked questions

Are RSUs or stock options better?

Neither is universally better. RSUs are lower-risk — they're worth something as long as the shares have value, and cost nothing to receive — but are taxed as ordinary income on their full value. Options cost money to exercise and can expire worthless, but offer leverage and, for ISOs, potentially better tax. It depends on the company's trajectory and your risk appetite.

Can I sell RSUs at a private company?

Usually not before a liquidity event. Most private-company RSUs are double-trigger, meaning you only receive shares at an IPO or sale, so there's nothing to sell beforehand. Options, by contrast, can often be exercised into real shares you might then sell, subject to transfer rules.

Which is taxed more favourably?

It depends. RSUs are taxed as ordinary income on the full value when they settle. ISOs can make the whole gain long-term capital gains if holding periods are met, which is often more favourable — but with AMT complexity. NSOs tax the exercise spread as income, like RSUs, then capital gains on later growth.

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