Have you ever received a compensation package from an employer that included restricted stock? Congratulations! Restricted stock is a form of equity compensation that grants an employee a certain number of company stock shares that remain restricted until vesting requirements are met, at which time they will pay out to the employee.

Here are four things to consider to make the most of your award:

1. Understand the Type of Award — Restricted stock can come in the form of Restricted Stock Awards (RSAs) or Restricted Stock Units (RSUs), each with their own nuances. RSAs provide immediate ownership of company stock, including dividend and voting rights, but are subject to restrictions until fully vested.

RSUs, on the other hand, are only a promise to pay out company stock units at a future date and do not provide dividends or voting rights before vesting. Understand which type of restricted stock you have been awarded, or if you received another type of stock award altogether, as holding periods and taxation vary across equity compensation plans.

2. Know the Vesting Schedule — Your award notice should include details of the grant date and vesting schedule for your specific stock incentive plan. Be aware of whether your vesting schedule is time-based or performance-based. If time-based, restricted stock can vest incrementally over a particular period (such as one-third of the award vesting each year for the next three years), or all at once on a designated date.

Understand what happens to your unvested shares in the event of employment termination due to death, disability, or leaving the company voluntarily. Additional details pertaining to your award can be found in periodic statements or your plan prospectus.

3. Identify Benefits and Risks — Employers can use restricted stock as a form of compensation to establish a sense of ownership among employees. You may be incentivized to stay long-term until your shares are vested or work harder to achieve a performance goal. Capital appreciation of your shares is also an added benefit. Be cognizant of concentration risk within your portfolio, with both your salary and company stock increasing your vulnerability if the company goes downhill. Once shares vest and advantageous holding periods are met, consider diversifying your portfolio to spread out risk.

4. Be Aware of Tax Implications — Taxes are triggered at vesting and at sale of restricted shares. As shares vest and are delivered, the fair market value will be considered ordinary income to you in that year. This taxable event will determine your cost basis.

If you decide to hold onto the shares into the future, the taxability of the capital gain (or loss) at sale will depend on whether your holding period was short-term or long-term, just as with any other sale of stock. Alternatively, an 83(b) election can be used for RSAs within 30 days of the grant date. This strategy gives you the option to pay taxes on the value of the restricted stock on the front end when granted, rather than at vesting.

Although this strategy could be beneficial if you anticipate the stock price to rise significantly, the greater risk is losing out on your pre-paid tax dollars if you forfeit the restricted stock before it vests.

Most importantly, coordinate with your CPA and CFP® professional if you expect to receive restricted stock in your compensation package. Intentional planning with your advisors around your specific financial situation will help avoid suboptimal tax consequences and maximize your award.

Sarah D. Nix is a CFP® professional and Associate Advisor with Keller Wealth Advisors.