Forum Thread

Employer Stock Plan - How to take advantage of this?

executivedealer 2,783 491 February 25, 2016 at 12:42 PM
Deal
Score
0
3,545 Views

Thread Details

I have a 401k and IRA Roth. I took on a position at a company sometime last year and have been pondering how the employer stock plan works, but have not done so yet. I feel like I'm missing out at some free money. Can someone explain the basics and what information I need to get to see if it is worth while?

13 Comments

1

Sign up for a Slickdeals account to remove this ad.

#2
If there is no vesting period or time you must keep before selling, then it is easy. My old company had 15% discount on stock, could use 10% of paycheck max per pay period. I would buy the max, and instantly sell it that day. After fees and what not, it was effectively a 12% bonus.
Reply Helpful Comment? 0 0
Joined Jul 2008
L10: Grand Master
6,104 Posts
3,123 Reputation
#3
Rules for ESPPs vary widely across companies. You'll have to look up the terms of your company's ESPP.
Reply Helpful Comment? 0 0
#4
Quote from dhc014 View Post :
Rules for ESPPs vary widely across companies. You'll have to look up the terms of your company's ESPP.
I was thinking the same
Reply Helpful Comment? 0 0
Joined Apr 2009
L7: Teacher
2,783 Posts
491 Reputation
Original Poster
Pro
#5
Here's what I found so far:

ESIP Stock Purchases - You contribute and the company provides a discount of 15% off the fair market value

Employee Stock Investment Plan (ESIP) to purchase Franklin Resources, Inc. (BEN) common stock at a discount.

• Convenient payroll deductions to fund the shares you intend to purchase

• Opportunity to purchase stock at the opening or closing date of the purchase period, depending on which date

the stock price is lower

• 15% discount on the price of stock when you purchase shares

• No payment of brokerage fees or commissions when stock is purchased

You’ll receive information about your opportunity to purchase shares before each ESIP purchase period, which begins in February and August each year.
Reply Helpful Comment? 0 0
#6
you choose a % of your gross salary to put toward company stock. that % is taken out post-tax from your paycheck and put into an escrow account. twice a year, it will automatically buy as many shares of company stock (at a 15% discount) with whatever money is in your account.

if there is no mandatory holding period, you can sell those shares immediately (~15% profit - tax on that profit), but you have to be able to handle not having that percentage of salary in your paychecks for the six months between purchases.

or you can select a lower percentage and just let it accumulate. if you hold it for over a year, you will pay long term capital gains tax if you sell it for a profit, which will likely be a lower rate than selling it immediately.
Reply Helpful Comment? 0 0
Joined Jun 2004
vec vec bo berra
30,535 Posts
3,268 Reputation
Global Mod
#7
We have the stock option where you have up to 10% of your salary put into your stock account each paycheck. At the end of each quarter your account will purchase shares of stock at 15% discount on the lowest price that stock had been during that particular quarter. Example, Stock is $110 at the end of the quarter but it had been as low as $100 during that quarter, then you will purchase the stock at $100 - 15%. We will then pay tax on the $15 discount. That will come out of the stock account and if the account cannot cover the taxes then the remainder will come out of our next paycheck.

We have a 1 year holding period on our stock options. This may vary by company.

It is a nice savings plan if your company offers it and you take advantage of it.
Reply Helpful Comment? 0 0
Joined Nov 2005
L10: Grand Master
25,030 Posts
3,353 Reputation
Pro
#8
Who manages the shares? It's not a "regular" brokerage like Fidelity et al. I don't think selling and transferring $$ (if the purpose is to make $$) is all that easy.
Reply Helpful Comment? 0 0

Sign up for a Slickdeals account to remove this ad.

#9
Quote from executivedealer View Post :
Here's what I found so far:

ESIP Stock Purchases - You contribute and the company provides a discount of 15% off the fair market value

Employee Stock Investment Plan (ESIP) to purchase Franklin Resources, Inc. (BEN) common stock at a discount.

o Convenient payroll deductions to fund the shares you intend to purchase

o Opportunity to purchase stock at the opening or closing date of the purchase period, depending on which date

the stock price is lower

o 15% discount on the price of stock when you purchase shares

o No payment of brokerage fees or commissions when stock is purchased

You'll receive information about your opportunity to purchase shares before each ESIP purchase period, which begins in February and August each year.

Assuming you have a way to sell the shares immediately upon receiving them (i.e., with in a couple of days) via some web portal run by a brokerage or the company plan administrator, then imo, contribute the max you can afford from your paycheck each period and sell immediately upon receiving the stock into your account. Free money effectively.

Some points though.

1. You will be without the money invested for the period and most likely the funds are held by the admin at no interest for the duration until the time of purchase. You will also likely not be allowed to participate should you leave the company for any reason prior to the close of the purchase period. They would just refund your withdrawals to you.

2. You likely will be charged a commission when selling...find out what that is.

3. The only way to lose money on this would be if the lower price was that at the end of the purchase period and the price of the stock tanks more than15% - commission costs between the day they do the purchase and the first day you can sell it (or the equivalent calc if at the beginning period and the stock price falls by even more). Very unlikely if you sell immediately after receiving it and assuming that you can sell within a business day or two of the purchase.

4. You will be taxed on the gain obviously.


You can obviously hold onto the stock if you think it is a good investment and try to get to the 1 year timeframe so that your gains would be taxed as capital gains instead of ordinary income. I would caution against holding large amounts of company stock though long term.
Reply Helpful Comment? 0 0
Last edited by YanksIn2009 February 28, 2016 at 02:40 PM
Joined Nov 2005
L10: Grand Master
25,030 Posts
3,353 Reputation
Pro
#10
Quote from YanksIn2009 View Post :
Assuming you have a way to sell the shares immediately upon receiving them (i.e., with in a couple of days) via some web portal run by a brokerage or the company plan administrator, then imo, contribute the max you can afford from your paycheck each period and sell immediately upon receiving the stock into your account. Free money effectively.

Some points though.

1. You will be without the money invested for the period and most likely the funds are held by the admin at no interest for the duration until the time of purchase. You will also likely not be allowed to participate should you leave the company for any reason prior to the close of the purchase period. They would just refund your withdrawals to you.

2. You likely will be charged a commission when selling...find out what that is.

3. The only way to lose money on this would be if the lower price was that at the end of the purchase period and the price of the stock tanks more than15% - commission costs between the day they do the purchase and the first day you can sell it (or the equivalent calc if at the beginning period and the stock price falls by even more). Very unlikely if you sell immediately after receiving it and assuming that you can sell within a business day or two of the purchase.

4. You will be taxed on the gain obviously.


You can obviously hold onto the stock if you think it is a good investment and try to get to the 1 year timeframe so that your gains would be taxed as capital gains instead of ordinary income. I would caution against holding large amounts of company stock though long term.

But you pay tax on the 15% discount. What's the cost basis for the shares? If it's the lower price, you also pay cap gains on the difference. Sure you will still make $$, but that's a LOT of bookkeeping for relatively little profit at the end of the day.
Reply Helpful Comment? 0 0
#11
Quote from Dr. J View Post :
But you pay tax on the 15% discount. What's the cost basis for the shares? If it's the lower price, you also pay cap gains on the difference. Sure you will still make $$, but that's a LOT of bookkeeping for relatively little profit at the end of the day.

I believe that the discount (15%) is considered income though I am not 100% sure how the book keeping is done. I believe the discount gets rolled into the gain computation when you sell but an accountant can better answer that. Either way they can only count it once. I used to turn around and sell immediately (company stock was generally garbage) and they would send me the appropriate tax forms.

As to how much you make, where else can you get 12-14% on your money with almost no risk? Yeah you may end up giving a third of it back in taxes, but it literally is free money as long as you can afford to have it taken out of your paycheck each period.
Reply Helpful Comment? 0 0
#12
Quote from Dr. J View Post :
But you pay tax on the 15% discount. What's the cost basis for the shares? If it's the lower price, you also pay cap gains on the difference. Sure you will still make $$, but that's a LOT of bookkeeping for relatively little profit at the end of the day.
Yup, what this guy said, just be aware that it's going to complicate your tax return because you'll need to report the sale and cost basis of the shares you sell
Reply Helpful Comment? 0 0
#13
You also have to consider qualifying or disqualifying disposition. Depending on the ESPP plan sometimes it is better to hold for 2 years and sell to reduce taxes than selling immediately after purchase.

https://www.reddit.com/r/investin..._you_sell/
Reply Helpful Comment? 0 0
#14
Quote from jbonez21 View Post :
Yup, what this guy said, just be aware that it's going to complicate your tax return because you'll need to report the sale and cost basis of the shares you sell
^ This. This sounds like a good thing to get into just beware of the tax implications.

Usually one of the best ways to navigate this is to talk to employees that utilize this feature.
Reply Helpful Comment? 0 0
Page 1 of 1
1
Join the Conversation
Add a Comment
 
Copyright 1999 - 2016. Slickdeals, LLC. All Rights Reserved. Copyright / Infringement Policy  •  Privacy Policy  •  Terms of Service  •  Acceptable Use Policy (Rules)  •  Interest-Based Ads
Link Copied to Clipboard