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401k/Company Stock Option
Posted on 5/14/26 at 9:11 pm
Posted on 5/14/26 at 9:11 pm
New job, one of our benefits at being able to purchase company stock at a 15% discount. 401k is normal 6% match. 3M Stock
Here's my question. My 401k is only allocated a few stock selections most of them the usual 30, 35, 40-year retirement stocks.
I can buy 3M stock at a 15% discount, keep it for a year and sell it. Because the brokerage is a different company for the stock, I can use the proceeds from selling the stock and purchase whatever I want stock wise. ETFs, individual stocks, bonds etc. Even take the hit and move it into a Roth if I want.
I've got 6% invested for the 401k match which is the max. It would be better for me to instead of adding any extra % to 401k, to just buy more stocks since they are at a 15% discount? Right? And then I can cash out and diversify into VOO or whatever? Or would you guys fund a 401k, and buy enough stocks to then convert enough to cap a Roth every year?
This might sound dumb, but I'm just trying to gain as much as I can.
Here's my question. My 401k is only allocated a few stock selections most of them the usual 30, 35, 40-year retirement stocks.
I can buy 3M stock at a 15% discount, keep it for a year and sell it. Because the brokerage is a different company for the stock, I can use the proceeds from selling the stock and purchase whatever I want stock wise. ETFs, individual stocks, bonds etc. Even take the hit and move it into a Roth if I want.
I've got 6% invested for the 401k match which is the max. It would be better for me to instead of adding any extra % to 401k, to just buy more stocks since they are at a 15% discount? Right? And then I can cash out and diversify into VOO or whatever? Or would you guys fund a 401k, and buy enough stocks to then convert enough to cap a Roth every year?
This might sound dumb, but I'm just trying to gain as much as I can.
7
Posted on 5/14/26 at 9:17 pm to BadatBourre
You are also assuming the stock will go up which isn’t guaranteed.
Posted on 5/14/26 at 9:25 pm to BadatBourre
Is the stock pre-tax dollars also?
Is the 401(k) maxed at 6% or just the marching up to 6%?
Is the 401(k) maxed at 6% or just the marching up to 6%?
Posted on 5/14/26 at 9:28 pm to Pvt Hudson
quote:
Is the stock pre-tax dollars also?
Good question. I didnt even think about that.
quote:
Is the 401(k) maxed at 6% or just the marching up to 6%?
Just the match up to 6%. Max is 15% Right?
Posted on 5/14/26 at 9:52 pm to BadatBourre
This totally depends on the company.
In most cases, I’m taking the 15% discount. If you subscribe to the efficient markets pattern of thinking (which is mostly correct), then your expected value is much higher than investing in an index with no discount.
However, if this is some shitty ultra volatile small cap, then I’m not sure I’d be very interested in having any meaningful % of my net worth in it. The variance of returns in those tiny companies can quickly eat away at that 15% discount.
All of that is to say I’d need much more info to give you decent advice.
In most cases, I’m taking the 15% discount. If you subscribe to the efficient markets pattern of thinking (which is mostly correct), then your expected value is much higher than investing in an index with no discount.
However, if this is some shitty ultra volatile small cap, then I’m not sure I’d be very interested in having any meaningful % of my net worth in it. The variance of returns in those tiny companies can quickly eat away at that 15% discount.
All of that is to say I’d need much more info to give you decent advice.
Posted on 5/14/26 at 10:42 pm to BadatBourre
quote:
Max is 15% Right?
$24500 in 2026 for your individual contribution
I think 70k or so total for your individual contribution plus employer contribution
Posted on 5/15/26 at 12:11 am to BadatBourre
If I am reading your scenario properly…
The 401k up to 6% comes 1st. Never give up free money. Matching 401k is a guaranteed 100% return up to 6%, before market returns on assets you buy.
Get the 15% stock discount is 2nd. Company stock discount purchase is guaranteed15% return at time of acquisition. Are you required to hold 1yr (vesting) or because you are seeking lower LTCG tax rate?
Note - That 1 year presents market risk (lower stock price dissolves discount). Might make sense to take discount immediately and pay ordinary income tax vs market risk of holding 1 year, depending on your tax bracket (AGI) and prognosis of future stock value.
Key question: What is your tax bracket?
Example - If your tax bracket is 22%, every extra $1 into traditional 401k saves ~$0.22 in taxes immediately. That’s an immediate 22% “return” on the tax savings.
Need to compare tax bracket to stock discount (if higher bracket (>15%), more to 401k likely makes best sense. If lower (<15%), stock discount likely makes best sense). Tax bracket vs 15% discount is decision.
3rd is to add more to 401k or Roth. If lower tax bracket (eg, 22% or less), Roth may make more sense. Why? The tax deferred shield is lower, and after tax growth rate opportunity of Roth is relatively higher. When in doubt, I would go Roth. Lots of upside with Roth once you are retired.
All above are restricted to $24,500 cap for individual investing in retirement (before +company contributions total limit).
The 401k up to 6% comes 1st. Never give up free money. Matching 401k is a guaranteed 100% return up to 6%, before market returns on assets you buy.
Get the 15% stock discount is 2nd. Company stock discount purchase is guaranteed15% return at time of acquisition. Are you required to hold 1yr (vesting) or because you are seeking lower LTCG tax rate?
Note - That 1 year presents market risk (lower stock price dissolves discount). Might make sense to take discount immediately and pay ordinary income tax vs market risk of holding 1 year, depending on your tax bracket (AGI) and prognosis of future stock value.
Key question: What is your tax bracket?
Example - If your tax bracket is 22%, every extra $1 into traditional 401k saves ~$0.22 in taxes immediately. That’s an immediate 22% “return” on the tax savings.
Need to compare tax bracket to stock discount (if higher bracket (>15%), more to 401k likely makes best sense. If lower (<15%), stock discount likely makes best sense). Tax bracket vs 15% discount is decision.
3rd is to add more to 401k or Roth. If lower tax bracket (eg, 22% or less), Roth may make more sense. Why? The tax deferred shield is lower, and after tax growth rate opportunity of Roth is relatively higher. When in doubt, I would go Roth. Lots of upside with Roth once you are retired.
All above are restricted to $24,500 cap for individual investing in retirement (before +company contributions total limit).
This post was edited on 5/15/26 at 12:30 am
Posted on 5/15/26 at 4:58 am to BadatBourre
On the one hand, 15% discount is great.
OTOH, some say tying a lot of retirement savings up in company stock may be risky since your job and your investment are too correlated.
It sounds like you have a long time horizon so it probably is reasonable.
If you were 5 years from retirement, going all in even with a 15% discount might not be the very best idea.
Good luck.
Good stocks can go down 30% or up 30% in any given year.
“TIME IN” the market outperforms “TIMING” the market.
OTOH, some say tying a lot of retirement savings up in company stock may be risky since your job and your investment are too correlated.
It sounds like you have a long time horizon so it probably is reasonable.
If you were 5 years from retirement, going all in even with a 15% discount might not be the very best idea.
Good luck.
Good stocks can go down 30% or up 30% in any given year.
“TIME IN” the market outperforms “TIMING” the market.
Posted on 5/15/26 at 8:17 am to BadatBourre
At your age and apparent time horizon, I think that getting the most money into tax sheltered accounts will have big benefits later in life.
401K up to the company match, then HSA, then Roth IRA if your qualify, then more 401K until it hurts. Do this for ten or so years then relax a little.
You didn't say an age but you mentioned 30-40 year time horizon. Somewhere later on you can do the company stock thing if you still work there, but get as much tax sheltered retirement assets as you can while you are young, preferably Roth but all are good.
401K up to the company match, then HSA, then Roth IRA if your qualify, then more 401K until it hurts. Do this for ten or so years then relax a little.
You didn't say an age but you mentioned 30-40 year time horizon. Somewhere later on you can do the company stock thing if you still work there, but get as much tax sheltered retirement assets as you can while you are young, preferably Roth but all are good.
Posted on 5/15/26 at 8:59 am to BadatBourre
quote:
one of our benefits at being able to purchase company stock at a 15% discount
I’m assuming that this is an ESPP similar to what my wife has. I believe the cap is $24,000 a year.
We purchase the maximum amount she’s allowed to which is $6000 per quarter. She’s required to hold for at least one year. We sell all of the shares as soon as they vest (FIFO). We bank the profits and we reinvest. It’s like a conveyor belt.
Her company is very profitable and their stock prices up probably 60% over the last 3 to 5 years. So the purchase makes sense to begin with. However, she also receives RSUs as part of her bonus, and I don’t want our portfolio over exposed to her company. We bake the profits and move on.
ETA: we are also maxing out her 401(k) to the federal cap.
This post was edited on 5/15/26 at 9:01 am
Posted on 5/15/26 at 9:12 am to castorinho
quote:
I think 70k or so total for your individual contribution plus employer contribution
$72K for 2026
Posted on 5/15/26 at 10:02 am to makersmark1
quote:
“TIME IN” the market outperforms “TIMING” the market.
This!
Posted on 5/15/26 at 2:01 pm to BadatBourre
I’d go min 10% on the 401(k). Growth funds. Set it and forget it. You get 20% return (or what ever tax bracket you are in) plus 100% on the first 60% without accounting for any increase in value at all.
IMO - 15% discount on stock if NOT pre-tax is riskier. Throw a portion of bonus or windfall into that from time to time - but not a long-term retirement account strategy being all in one stock. Especially if there is a mandatory holding period for the stock once you purchase it.
IMO - 15% discount on stock if NOT pre-tax is riskier. Throw a portion of bonus or windfall into that from time to time - but not a long-term retirement account strategy being all in one stock. Especially if there is a mandatory holding period for the stock once you purchase it.
Posted on 5/15/26 at 2:30 pm to Pvt Hudson
quote:
You get 20% return (or what ever tax bracket you are in)
Not really. You pay the 20% (or whatever your future tax bracket is) upon withdrawal. The math works out even paying tax up front or on the back end assuming same tax rate. The advantage is determined by if your tax rate is/will be lower.
Only way the advantage of traditional is 20% is if future tax rate is zero.
Posted on 5/16/26 at 9:45 am to TigahsOnTop
3M Stock.
Posted on 5/16/26 at 9:48 am to Everyday Is Saturday
quote:
Are you required to hold 1yr (vesting)
Yes, has to be vested for one year before selling. It's a gamble.
quote:22%
What is your tax bracket?
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