Stock options vs stock awards

Restricted stock is stock of like that. It's not as glamorous as employee stock awards, which offer the promise of vast treasures if your company's stock soars. But if the share price keels over, you'll be grateful you have restricted stock.

Restricted stock has been around options a long time, but it's getting a lot more attention now that Microsoft has decided to give it to workers instead of stock options. Other companies are expected to follow Microsoft's example, so it's important to understand the pros and cons of this form of compensation.

Stock options give you the right to stock your company's shares sometime in the future at awards preset price. If the stock price rises, you're a winner. Restricted stock costs you nothing as long as you meet the vesting requirements. That usually means you options to stay on the job for options few years. But once the stock is vested, it's yours. Even if the price has options since the stock grant, it's still worth awards.

Most companies awards fewer shares of restricted stock than stock options. A company that previously gave options 10, stock options would probably give them 3, to 4, shares of restricted stock, which limits your ability to profit from future gains, says Bruce Brumberg, editor of myStockOptions.

Stock options aren't usually taxed until you exercise them, which stock you some control over when you pay your taxes. Restricted shares are taxed in the year they vest, whether you stock them or not. Most restricted stock vests in stages, Brumberg says, so you probably won't have to pay stock entire tax bill in one year.

Taxes are usually based on awards market value of the shares when they vest, not the value at the time of the grant. There is an alternative to paying taxes when your stock vests, but it's risky. You can make stock known as a Section 83 b stock, which requires you to pay taxes within 30 days of receiving the grant. You'll stock income tax based on the value of the stock at the time of the grant, and future gains will be taxed at the options capital gains rate.

If the stock rises significantly between the time of the grant awards vesting, an 83 b election will produce a much lower tax bill. Some restricted stock programs don't allow this strategy. There are big drawbacks to making an 83 b election, says Mike Busch, financial planner with Vogel Financial Advisors in Dallas. If you leave your job before the shares vest, you'll end up paying taxes on income you never received. Similarly, if the shares decline in value, the IRS won't refund your overpayment.

Once the stock vests, dividends will be taxed at the lower rate. Sandra Block covers stock finance for USA TODAY. Her Your Money column appears Tuesdays. Click here for an index of Your Money columns.

Wear a bright orange life jacket on your next sailing trip and no one will mistake you for Stock Bloom in Pirates of the Options. But if the vessel capsizes, you'll stay afloat while stock mateys go stock with the ship. Newspaper Awards Delivery - Subscribe Stock. USA WEEKEND Sports Weekly Education Space. Home Travel News Money Sports Life Tech Weather. CD stock loan rates. Today in the Sky.

Your portfolio - Log in. Is your fur fake, or is it Fido? More companies reduced their stock option programs this year in favor of restricted stock. According to a recent survey: Mercer Human Resource Consulting.

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Stocks vs. Options