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Roth 401k vs. Company Stock Plan
Posted on 6/26/15 at 11:50 am
Posted on 6/26/15 at 11:50 am
Right now my primary vehicles for retirement are my Roth 401k and my company Stock Purchase Plan. I am thinking about adjusting the percentages and want to know your thoughts.
Current State;
Roth 401k: 14.5% gross income (10% contribution, 4.5% match)
Stock Purchase Plan: 2% gross income
Here is the deal: I get a 15% discount on the lowest stock price my company has over a 6 month timeframe. It it is a Fortune 10 company and has historically been one of the top performing stocks in the S&P 500.
Does it make sense to cut back on Roth 401k contributions to bump up the discounted stock purchase? My company matches up to 6%, so the extra 4% I am contributing could go into the stock purchase plan.
**Note: I also contribute 5% to savings and can adjust this as well
Current State;
Roth 401k: 14.5% gross income (10% contribution, 4.5% match)
Stock Purchase Plan: 2% gross income
Here is the deal: I get a 15% discount on the lowest stock price my company has over a 6 month timeframe. It it is a Fortune 10 company and has historically been one of the top performing stocks in the S&P 500.
Does it make sense to cut back on Roth 401k contributions to bump up the discounted stock purchase? My company matches up to 6%, so the extra 4% I am contributing could go into the stock purchase plan.
**Note: I also contribute 5% to savings and can adjust this as well
3
Posted on 6/26/15 at 12:03 pm to Lawyers_Guns_Money
Are you penalized for the cash out of stock? Minimum holding time? ETA: Can you transfer between accounts, or can only purchase company stock and hold it?
Since contributing to Roth, both are after tax dollars. However, the stock purchase would be taxed at capital gains (now and at retirement).
I personally would max the stock plan. A free 15% is easy money, before or after taxes. I'd reduce elsewhere if possible to keep the retirement account funded. ETA: Since stock purchase is also retirement, I'd only put in what I was comfortable having tied up in the company stock. This is likely more than the 2%, but maybe not as much as previous recommendation, depending on flexibility with the sale of the stock.
Since contributing to Roth, both are after tax dollars. However, the stock purchase would be taxed at capital gains (now and at retirement).
I personally would max the stock plan. A free 15% is easy money, before or after taxes. I'd reduce elsewhere if possible to keep the retirement account funded. ETA: Since stock purchase is also retirement, I'd only put in what I was comfortable having tied up in the company stock. This is likely more than the 2%, but maybe not as much as previous recommendation, depending on flexibility with the sale of the stock.
This post was edited on 6/26/15 at 12:07 pm
Posted on 6/26/15 at 12:29 pm to Lawyers_Guns_Money
Is your company hiring?
Posted on 6/26/15 at 12:44 pm to Lawyers_Guns_Money
quote:
Does it make sense to cut back on Roth 401k contributions to bump up the discounted stock purchase?
You should always maximize any free money you get. So make sure you contribute at least 4.5% to the 401 (since that's the amount matched) and as much as you can to the stock plan until the discount is no longer available, which would be 6%.
Anything else you can put in the 401(k). Beyond a thousand or two I wouldn't bother with a savings account, put it all in a Roth IRA since you can pull it back out if you need it and in the meantime enjoy tax-free earnings.
Also, don't let the stock plan pile up too much. Every year or so you should sell any amount that is vested and only subject to long-term capital gains. It's generally not a good idea to have too much of your savings invested with your employer.
Posted on 6/26/15 at 1:23 pm to foshizzle
Thanks for the feedback, guys.
There is no minimum time on holding the stock. After the 6 month period is over, I get the shares and can sell immediately. However, it is tempting to hold the stock considering performance vs the market historically.
For the Roth IRA part, I have debated in this in the past and cannot find a major difference between a Roth 401k and a Roth IRA (minus the contribution differences). I used to contribute to a Roth IRA, but I pulled this money back and have been putting it in the Roth 401k.
There is no minimum time on holding the stock. After the 6 month period is over, I get the shares and can sell immediately. However, it is tempting to hold the stock considering performance vs the market historically.
For the Roth IRA part, I have debated in this in the past and cannot find a major difference between a Roth 401k and a Roth IRA (minus the contribution differences). I used to contribute to a Roth IRA, but I pulled this money back and have been putting it in the Roth 401k.
Posted on 6/26/15 at 4:48 pm to Lawyers_Guns_Money
quote:
For the Roth IRA part, I have debated in this in the past and cannot find a major difference between a Roth 401k and a Roth IRA (minus the contribution differences). I used to contribute to a Roth IRA, but I pulled this money back and have been putting it in the Roth 401k.
No difference except contribution limit and income restrictions.
I'd go with the Roth IRA first since it would be the first you would lose due to income. Can always contribute any extra you want in a Roth vehicle in the Roth IRA.
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