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My restricted stock will vest soon - now what?

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If your employer has granted you a restricted stock award, you generally have to wait until the grant vests to receive the shares. Each grant may have different vesting requirements, which are often based on a stated period of time from the grant date. Either way, you’ll have a few “to dos” as the vesting date approaches.

Grant acceptance

Some plans require grants to be formally accepted. As such, you may be required to accept your grant prior to the lapse (or vesting) date to help ensure prompt delivery of shares. Check your plan documents and grant agreements to be sure you understand what is required for your specific situation.

If your equity award plan is at Merrill Lynch, view this quick reference guide for step-by-step instructions on accepting your grant.

Brokerage account

Before the vesting date, it's a good idea to open an account with the brokerage firm or transfer agent that your company designates. This facilitates the delivery of shares at vesting and having the account will enable you to conduct transactions related to those shares. It is important that you open an account, as your company may have a policy of not delivering shares until you have done so. You should also complete either IRS Form W-9 (for U.S. tax residents) or IRS Form W-8BEN (for nonresident aliens). If the account does not have this form (or if you have not recertified), you will be subject to backup withholding on the gross proceeds derived from any sale of shares.

If your equity award plan is at Merrill Lynch, view this quick reference guide for step-by-step instructions on opening a Limited Individual Investor Account (LIIA) to manage your awards. You may also want to take a look at the Your Merrill Lynch Brokerage Account on-demand seminar for additional information.

Tax decisions

Upon receipt of the awards, you may be required to make a tax election indicating how you want to pay the taxes due when your award vests. For example, you may wish to pay your taxes by having some of your shares withheld, or with cash. Your company may have a mandatory withholding method, in which case you don’t have to make a decision, or it may have a default method that it will use if you don’t elect your withholding method by the deadline. Check your plan documents and grant agreements to be sure you understand what is required for your specific situation.

You will owe taxes on the value of the restricted award shares at vesting, which is generally when the shares are delivered into your account.2

For federal tax purposes, the withholding generally is required to be at the rate for supplemental wages (usually 25%, though it is 39.6% for aggregate amounts of supplemental wage income above the level of $1 million during a calendar year1). In addition, Social Security tax will be withheld up to the yearly maximum, along with Medicare (plus any state and/or local taxes on this type of income).

If your equity award plan is through Merrill Lynch, view this quick reference guide on making a tax election for your equity award on Benefits OnLine®.

Hold, sell or gift?

What will you do with the shares once you receive them? You may decide to sell or gift the shares, transfer them to another account, or change them to joint ownership. A financial professional can help you take a look at your personal financial goals, both long- and short-term, and guide you in making these decisions.

Learn more and take action

Visit the Equity Awards Education page for additional on-demand seminars and Quick Tips on managing your awards.

For details regarding the taxation of your equity awards, please refer to our annual Equity Tax Guide.

Neither Merrill Lynch nor any of its affiliates or financial advisors provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

 
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1 Source: Internal Revenue Code, February 2016.

2 If you received restricted stock, and you timely and properly made a section 83(b) election, you will recognize ordinary income equal to the excess of the fair market value of the stock at the time of grant over any amount paid for the shares. A subsequent sale of the shares will result in capital gain or loss.

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