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When you're evaluating a job offer at a startup or tech company, equity compensation can feel like the most exciting line on the offer letter — and the most confusing. Two terms come up constantly: RSUs (restricted stock units) and stock options. Understanding the RSU vs stock options debate isn't just an academic exercise. Depending on which you receive, how you exercise, and when your company exits, the difference can have six- or seven-figure implications for your net worth.
This article breaks down the mechanics, the taxes, and the real-world tradeoffs — so you can make an informed decision about your equity compensation. Whether you're comparing a new offer with RSUs against one with stock options, or trying to figure out what to do with the equity you already hold, this guide covers what you need to know.
RSUs, or restricted stock units, are a promise from your employer to deliver shares of company stock — but only after you satisfy certain conditions, typically a vesting schedule. The most common structure is a four-year vesting schedule with a one-year cliff: you receive 25% of your total RSU grant after completing one year of service, with the remainder vesting monthly or quarterly over the following three years.
When your RSUs vest, you receive actual shares in your name. At that moment, the fair market value of those shares is recognized as ordinary income — taxed exactly like your salary — and your employer typically withholds a portion of the vesting shares to cover your tax liability. Once you own the shares, any future appreciation or depreciation is subject to capital gains treatment.
For employees at public companies like Alphabet, Meta, or Nvidia, RSUs have become the dominant form of equity compensation. They're simpler, more predictable, and immediately liquid after vesting. In the startup world, however, stock options remain the norm — and understanding why requires looking at how options actually work.
Stock options give you the right — but not the obligation — to purchase shares of your company at a predetermined price known as the strike price or exercise price. This price is set at the time of grant and is typically equal to the fair market value of the stock on that date, as determined by a 409A valuation for private companies.
There are two main types of stock options issued to employees. Incentive Stock Options (ISOs) are available only to employees of U.S. corporations and come with potentially favorable tax treatment. Non-Qualified Stock Options (NSOs or NQSOs) can be granted to employees, advisors, and contractors alike, but carry less favorable tax treatment. Both types typically vest over four years with a one-year cliff — and both expire if not exercised within a defined window, often ten years from grant or 90 days after you leave the company.
The fundamental appeal of options is leverage. If a startup's stock is valued at $2 per share when you're granted options at a $2 strike price, and the company later grows to a $50 per share valuation, your options let you buy at $2 and capture $48 per share in gain. That's the startup lottery that has created enormous wealth for early employees at companies like Airbnb, Stripe, and DoorDash. The flip side: if the company never appreciates above your strike price, your options expire completely worthless.
When comparing restricted stock units vs options, the differences come down to five core dimensions: risk, cost, taxes, complexity, and upside potential. Understanding each dimension is essential to evaluating which instrument makes sense in your situation.
Risk: RSUs carry less downside risk. Even if your company's stock price declines, your RSUs retain some value as long as the stock is worth anything above zero. Options, by contrast, can expire completely worthless if the stock price never rises above your strike price — meaning you could spend years at a company and receive nothing from your equity grant.
Cost: RSUs cost you nothing to receive — shares are delivered automatically upon vesting. Options require you to actively pay the strike price to exercise, which can be a meaningful cash outlay for large grants. At a company with a $50 per share 409A valuation and a grant of 50,000 options, exercising everything costs $2.5 million out of pocket.
Taxes: RSUs are taxed as ordinary income when they vest, with no planning required. Options — particularly ISOs — offer the potential for preferential long-term capital gains tax treatment, but only under specific conditions and with careful timing.
Complexity: RSUs are relatively straightforward — vest, receive shares, pay taxes. Options come with expiration dates, exercise windows, early exercise provisions, 83(b) elections, and Alternative Minimum Tax (AMT) considerations that require active management and professional guidance. The decisions around options are consequential in ways that RSUs simply are not.
Upside: For early-stage startups with substantial growth ahead, options can deliver dramatically more upside due to their inherent leverage. A 10x increase in company value translates directly into a 10x increase in option gains from the strike price — while RSU holders experience the same appreciation but on whatever valuation the RSUs were granted at, which in late-stage companies is often already substantial.
Tax treatment is often the deciding factor in the restricted stock units vs options comparison, and the differences are significant enough to warrant a close look before you make any equity decisions.
RSU taxes: When RSUs vest, the full fair market value is recognized as ordinary income and subject to federal income tax (up to 37%), Social Security, and Medicare taxes. Your employer typically withholds shares to cover this automatically — you receive fewer shares than your grant specifies, but you don't need to produce cash. Once you own the shares, future appreciation is taxed as capital gains: long-term rates (0%, 15%, or 20% depending on income) if held more than one year from vesting, or short-term (ordinary income rates) if sold within a year.
ISO taxes: ISOs offer a potentially powerful tax benefit. If you exercise ISOs and hold the resulting shares for at least two years from the grant date and one year from the exercise date, the entire gain — from your strike price to your sale price — qualifies for long-term capital gains rates. The catch: the spread between the strike price and fair market value at exercise is a preference item for the Alternative Minimum Tax (AMT). In years with significant AMT exposure, exercising ISOs can trigger a substantial tax bill even though you have not sold any shares or received any cash — a trap that has blindsided many startup employees who waited too long to plan.
NSO taxes: NSOs are taxed as ordinary income on the spread at exercise — just like wages — regardless of how long you hold the shares afterward. There is no AMT complication with NSOs, but you also lose the opportunity for the preferential capital gains treatment that ISOs can provide under the right conditions.
The IRS guidance on employee stock options lays out the official framework in detail. The practical takeaway: ISOs reward patience and precise timing; RSUs reward simplicity and predictability; NSOs sit somewhere in between. Always consult a qualified tax professional before making any decisions about exercising options or managing a concentrated RSU position — the consequences are too significant to navigate without professional guidance.
Whether RSU or stock options is better for you depends almost entirely on where your company sits in its lifecycle and what your personal financial circumstances look like. Here is a practical framework for thinking through the decision.
Early-stage startups (Seed through Series B): Stock options are almost always the better vehicle. The company's current valuation is low relative to its potential, your strike price is low, and the leverage is high. RSUs at seed stage would need to be priced at an extremely low valuation to make economic sense — most seed-stage companies offer options for this reason. If the company ultimately succeeds and IPOs or gets acquired at a high multiple, options can deliver 50x–100x returns on the initial grant value.
Growth and late-stage startups (Series C through pre-IPO): This is where the calculus becomes more nuanced. As companies like Klarna, Chime, and other large private unicorns approach IPO, their valuations have already grown substantially. The leverage from options is smaller, and the risk of options expiring worthless is lower. Many late-stage companies have started offering RSUs — particularly to senior hires coming from public companies — because RSUs feel more tangible and require less planning to realize.
Public companies: RSUs are almost universally preferable. They are simpler, immediately liquid after vesting, and require no capital to acquire. While some public companies still offer employee stock options, RSUs now dominate equity compensation at large public tech companies. The complexity of options adds no meaningful benefit once a company's stock is freely tradable.
In my experience working with equity holders across hundreds of startups, the most common mistake isn't choosing the wrong type of equity — it's failing to plan for the tax consequences until it's too late. I've encountered employees with significant paper gains on their ISOs who faced AMT bills that consumed the majority of their liquid savings because they exercised at the wrong time without a strategy in place. The type of equity you hold matters a great deal, but the timing and planning around it can matter just as much.
Here is something that rarely comes up in the RSU vs stock options debate: both instruments leave you with deeply concentrated exposure to a single company. Whether you're accumulating vested RSUs at a pre-IPO unicorn or sitting on a large options grant at a Series D startup, your financial future is substantially tied to the performance of one organization. According to research and startup data compiled by Y Combinator, even among well-funded, VC-backed startups, the large majority fail to return meaningful capital to employees. The outcomes in venture tend to be power-law distributed — a handful of massive winners and a long tail of companies that return little or nothing.
This concentration problem is covered in depth in the challenges facing startup stock and option holders — and it's a structural issue that neither RSUs nor options resolve on their own. The equity structure you hold determines your tax treatment and upside mechanics, but it does nothing to reduce the company-specific risk you are carrying.
One increasingly discussed strategy for managing this risk is equity pooling — a structure that lets startup equity holders pool their shares across multiple companies, creating a diversified portfolio from an otherwise concentrated position. You can learn more about how this works in this introduction to equity pooling, or use Aption's Equity Simulator to model how diversification might affect your personal equity outcome under different scenarios.
If you're still weighing whether to exercise your options at all — a decision with significant financial and tax implications — the guide on whether you should buy your equity is worth reading before you act. And for employees trying to understand the financing options available to cover exercise costs, how to pay for stock options covers the approaches in detail.
The RSU vs stock options question doesn't have a universal answer. Whether RSU or stock options is better for you depends on your company's stage, your personal tax situation, your risk tolerance, and how you plan to manage the equity once you hold it. RSUs offer simplicity, predictability, and no upfront cost. Stock options offer leverage and potential for outsized gains — along with greater complexity and meaningful execution risk.
What both have in common is that they leave you with concentrated exposure to a single company. That concentration is a risk worth taking seriously, regardless of which instrument you hold. Understanding your equity type is only the first step — the more consequential question is how you manage it over time, and whether a strategy like equity pooling belongs in your broader financial picture.
Before making any decisions about exercising options, selling vested RSUs, or exploring diversification strategies, consult a qualified financial advisor and tax professional. The stakes are high enough — and the rules complex enough — that professional guidance is not optional.
The author name used in this article may be a pen name or pseudonym and is used for illustrative and editorial purposes only. This article is for informational purposes only and does not constitute investment, tax, or legal advice. Consult qualified professionals before making financial decisions.
Daniel is a former venture capital partner and startup equity strategist with over 15 years of experience advising founders, employees, and institutional investors on equity structures, liquidity events, and portfolio construction.