Espp should i

These plans can be great investments if used correctly. Purchasing stock at a discount is certainly a valuable tool for accumulating wealth, but comes with investment risks you should consider. As with any stock, the value of ESPP shares can drop or go away altogether, very quickly. Having a large portion of your nest egg and your income tied to the performance of one firm creates undue risk.

Although everyone is different, we do see some common patterns. Highly compensated employees at firms offering ESPP programs are often also awarded stock options and restricted stock as part of their compensation. If their company has done well, they may actually own too much of their company stock as a percentage of their portfolio.

Additional purchases of employer stock would further concentrate their investments and create unnecessary risks, if the stock fails to perform. In addition, these people often have access to several types of tax-advantaged accounts. One strategy we like for these highly compensated clients involves a cycle of maximum ESPP contributions, simultaneous sales, high-basis shares, and immediate investment of proceeds in tax-advantaged accounts.

The investor obtains the This is known as a qualifying or disqualifying disposition. A qualifying disposition is when you sell your shares for more than a year after the purchase date and more than two years after the offering date. In this case, any gains above the discount are taxed at capital gains tax rates. If you do not satisfy both requirements for a qualifying disposition known as a disqualifying position , any gains above the discount are taxed as ordinary income.

When deciding if it makes sense to participate, there are two major considerations: your current financial situation and your cash flow. Before deciding to participate, take an assessment of your current financial situation. Do you have at least three months of an emergency fund saved? What about high-interest debt such as credit cards or personal loans? When you participate in an ESPP, your paycheck is reduced by the amount you contribute.

Ideally, you should be in a position where the smaller paycheck does not impact your regular living expenses. There are some situations where ESPPs may not be worth the hassle.

After you purchase your ESPP shares, you can decide to keep or sell them. That is, if the stock price plummets, your career may well tank at the same time. ESPPs can be a great way to build wealth and more quickly achieve your personal financial goals.

Maximize this great benefit by beginning with a solid plan to lead the way. Disclaimer: This material has been prepared for informational purposes only and should not be used as investment, tax, legal or accounting advice. All investing involves risk. Past performance is no guarantee of future results. Diversification does not ensure a profit or guarantee against a loss.

You should consult your own tax, legal and accounting advisors. Even though you might not know your tax liability until you file your tax. For years, investing in Silicon Valley was predominantly reserved for ultra-wealthy venture capitalists, but that exclusive landscape is changing.

The last year has seen three massive initial. That was in , but the sentiment still drives every decision we make. After 35 years of helping individuals, families and business owners plan for financial independence, our commitment to serving as financial life advocates is stronger than ever. More ». The Plancorp Team Careers. By: Plancorp team July 22, What is an ESPP?

This can boost your benefit in two ways: If the share price moves up during the purchase period, it magnifies the gains. The popular employee compensation program, known as an Employee Stock Purchase Plan ESPP allows you to do just this—to buy your company stock at a discount.

Offered by most publicly traded companies, an ESPP is an employee benefit that allows you to purchase shares of your company stock at a discount. If your employer offers an Employee Stock Purchase Plan, and you are not participating already, in most cases, you should immediately stop what you are doing and go enroll!

Typically, every six months your ESPP will have an enrollment period. Your contributions into the plan will be directly pulled from payroll at each pay period and accumulate in your ESPP account. At the end of the period, on the purchase date, the money will be used to purchase shares of your company stock at a discount to their market value.

Companies can further restrict your contributions, if they chose, to either a percent of your salary or a flat dollar amount. Now assume your typical take home pay, after withholdings and deductions for taxes, k contributions, health insurance, etc.

Participating in your Employee Stock Purchase Plan is no different. If you can swing it from a monthly cash flow perspective, you should jump at the chance to participate. As mentioned above, the primary advantage to exploit in an ESPP is the discount. An ESPP is a fairly straightforward program that only gets complicated when introducing taxation into the equation.

If shares are sold under a Qualifying disposition, a portion of the discounted purchase price is treated as income while the remaining gain if any is taxed at lower long-term capital gains tax rates.

You must hold onto the shares for at least another year after the purchase date and run the risk that the price of the shares drop.