topic Re: Should I be maxing my ESPP contributions? in Personal Finance

Should I be maxing my ESPP contributions?

icednightpaper — Tue, 17 Dec 2019 03:41:58 GMT

I'm new to Employee Share Purchase Plans (ESPP), and here are the stats on my company:

-15% discount

-1-15% max contribution per paycheck

-Bought quarterly

-Sell anytime

For whatever reason I am just not understanding completely why I should or should not be taking advantage of this. Help me please!

Re: Should I be maxing my ESPP contributions?

iced — Tue, 17 Dec 2019 14:52:56 GMT

@icednightpaper wrote:
I'm new to Employee Share Purchase Plans (ESPP), and here are the stats on my company:

-15% discount
-1-15% max contribution per paycheck
-Bought quarterly
-Sell anytime

For whatever reason I am just not understanding completely why I should or should not be taking advantage of this. Help me please!

I'm firmly in the max-it-out group myself, and I do the full 10% my employer allows. Reasons:

1. I'm getting stock at a 15% discount. As your company allows same-day sales (I'm subject to blackout, so alas not for me), that's basically your employer paying you 15% interest (before taxes) on holding your money.

2. If you feel good about your company's prospects, it's getting you in at a discount. Hold and let it grow. If it pays good dividends, bonus.

3. If you don't manage savings well, it's a way to pay yourself first so you're not blowing your whole paycheck on stupid crap like electronics and clothing.

The trifecta at a good company is to max out your (Roth) 401k, HSA, and ESPP withholdings. It's probably a lot for a lower income position, but if you can swing it, that can be over $50,000/year being saved for retirement right there.

Re: Should I be maxing my ESPP contributions?

tacpoly — Tue, 17 Dec 2019 15:36:32 GMT

I assume you’ve maxed out your (Roth) 401k and Roth IRA, and you’re now wondering where to put your extra money. Your ESPP looks like it will automatically give you a gain (minus income tax if you sell immediately) — why say no to free money?

Do you understand how your ESPP works? If not read the plan — at least understand the pricing (if there’s a lookback, you can get significantly more than a 15% discount if your company stock is on an upward trend), and holding requirements for qualified distribution so you don’t pay too much income tax.

You can make money participating in ESPP plans, a lot if your company stock is healthy.

Re: Should I be maxing my ESPP contributions?

coldfusion — Tue, 17 Dec 2019 15:49:47 GMT

@tacpoly wrote:
I assume you’ve maxed out your (Roth) 401k and Roth IRA, and you’re now wondering where to put your extra money. Your ESPP looks like it will automatically give you a gain (minus income tax if you sell immediately) — why say no to free money?

Do you understand how your ESPP works? If not read the plan — at least understand the pricing (if there’s a lookback, you can get significantly more than a 15% discount if your company stock is on an upward trend), and holding requirements for qualified distribution so you don’t pay too much income tax.

You can make money participating in ESPP plans, a lot if your company stock is healthy.

+100000

+1 million on the lookback. My last employer's ESPP plan had a 2 year lookback and during that period the company stock tripled in price.