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Employee Stock Purchase Plan--Good Idea?
Posted on 8/12/13 at 6:57 pm
Posted on 8/12/13 at 6:57 pm
I qualify for the employee stock purchase plan with my current employer, a multinational healthcare company. Basically I can buy company stock at a 15% discount and the company pays all fees etc.
A coworker told me to buy whatever amount I decide on(will be deducted from paycheck every pay period) and cash out every 12 months or so. He uses it like a high yield savings account basically. Is this a good idea? It's at almost $100 a share right now so I might be able to buy 2 or 3 shares a month. Is it even worth it?
A coworker told me to buy whatever amount I decide on(will be deducted from paycheck every pay period) and cash out every 12 months or so. He uses it like a high yield savings account basically. Is this a good idea? It's at almost $100 a share right now so I might be able to buy 2 or 3 shares a month. Is it even worth it?
4
Posted on 8/12/13 at 7:13 pm to nikki6
Yes.
15% of $100 per share times 3 shares a month is a free $45 a month. Next year you might be able to afford 4 or 5 shares a month and more the year after.
15% of $100 per share times 3 shares a month is a free $45 a month. Next year you might be able to afford 4 or 5 shares a month and more the year after.
Posted on 8/12/13 at 7:27 pm to nikki6
Is there a limit on how long you have to hold the shares?
If the stock is fairly stable, like mentioned its a free 15%. I'd buy whatever you can.
If the stock is fairly stable, like mentioned its a free 15%. I'd buy whatever you can.
Posted on 8/12/13 at 7:36 pm to nikki6
Look into the math behind the cashing out strategy your friend incorporates to decide if it's advantageous in terms of taxes, returns, etc.
This post was edited on 8/12/13 at 7:37 pm
Posted on 8/12/13 at 9:19 pm to nikki6
You're getting 15% extra on your investment up front. That should make any stock vastly more attractive.
What I do with my ESPP is contribute the max every paycheck until I have anywhere from 6-12 months worth of purchases that are eligible for long-term capital gains tax treatment. I sell that portion and repeat.
You don't want to build up too much investment in the company that pays your bills in case things go badly. But so long as they're giving you a discount and you can minimize the tax bill, go for it.
What I do with my ESPP is contribute the max every paycheck until I have anywhere from 6-12 months worth of purchases that are eligible for long-term capital gains tax treatment. I sell that portion and repeat.
You don't want to build up too much investment in the company that pays your bills in case things go badly. But so long as they're giving you a discount and you can minimize the tax bill, go for it.
Posted on 8/12/13 at 9:24 pm to foshizzle
Agree w/foshizzle...long (>1yr) vs. short term is big tax difference.
Mine works by taking lower of Jan 1 or Dec 31 share price and then discounting it by 15% (so it is 15% minimum gain). I hold for 1 year for LT tax rates.
I would max out 401k and then ESPP...in that order...and both if you can...or towards it. Discounts are your friend!
Mine works by taking lower of Jan 1 or Dec 31 share price and then discounting it by 15% (so it is 15% minimum gain). I hold for 1 year for LT tax rates.
I would max out 401k and then ESPP...in that order...and both if you can...or towards it. Discounts are your friend!
Posted on 8/12/13 at 10:10 pm to LSUtigerME
quote:
Is there a limit on how long you have to hold the shares?
Exactly, buy that and cash out. Easy 15%.
My company used to do this. Now, its 5% and you have to hold it for a year.
Posted on 8/12/13 at 10:24 pm to kengel2
My new job offers this plan, and I'll be getting a 15% discount every quarter on up to 10% of salary. The discount will apply to the price at the end of the quarter. The caveat is that you have to hold the shares for at least one year. Is it worth it to buy quarter-to-quarter put options for this case? Also, how is this transaction taxed? I've read somewhere that the cost basis would be the full price of the shares. However, they will tax your discount at ordinary income tax rates.
This post was edited on 8/12/13 at 10:27 pm
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