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How to Maximize your ESPP: Tech Professionals 2 of 6
In our latest episode of ThimbleberryU, Jag and I continue our six-part series focused on the tech sector. We delve into Employee Stock Purchase Plans (ESPPs), a topic particularly relevant to our tech professional listeners. An ESPP is a program allowing employees of public companies to buy company stock at a discounted price, typically through payroll deductions. We emphasize the importance of the discount, noting that not all ESPPs offer this benefit.
We compare ESPPs to 401k plans, highlighting the immediate financial gain from the discounts, which can be as high as 15%. We explain the typical structure of these plans, including offering periods and the mechanics of purchasing shares at a discounted rate. The specifics of these plans, such as the discount rate and the timing of stock purchases, are set by the employer.
Next. we cover the tax implications of ESPPs. While the discount is taxed as ordinary income, the real tax benefit comes when selling the shares. To maximize this benefit, shares should be held for at least one year after purchase and two years from the start of the offering period. This strategy allows gains to qualify as long-term capital gains, which are taxed at a lower rate than ordinary income.
We also explore strategies for making the most of ESPP participation. We advise contributing the maximum amount allowed and discuss the importance of selling shares strategically. We note the risk of stock volatility and the potential issue of being too financially tied to one's employer.
We share a real-life example of a client, who successfully used his ESPP to fund his children's college education and boost his retirement savings. This illustrates the power of ESPPs as a tool for achieving various financial goals.
Finally, we discuss aligning ESPP participation with broader financial objectives. We stress the importance of understanding one's financial goals and how ESPPs can play a role in achieving them. You should consider your overall financial position and level of investment in your employer's stock when deciding whether to sell or hold ESPP shares.
To get in touch with Amy and her team at Thimbleberry Financial, call 503-610-6510 or visit thimbleberryfinancial.com.
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By Amy Walls
5
66 ratings
In our latest episode of ThimbleberryU, Jag and I continue our six-part series focused on the tech sector. We delve into Employee Stock Purchase Plans (ESPPs), a topic particularly relevant to our tech professional listeners. An ESPP is a program allowing employees of public companies to buy company stock at a discounted price, typically through payroll deductions. We emphasize the importance of the discount, noting that not all ESPPs offer this benefit.
We compare ESPPs to 401k plans, highlighting the immediate financial gain from the discounts, which can be as high as 15%. We explain the typical structure of these plans, including offering periods and the mechanics of purchasing shares at a discounted rate. The specifics of these plans, such as the discount rate and the timing of stock purchases, are set by the employer.
Next. we cover the tax implications of ESPPs. While the discount is taxed as ordinary income, the real tax benefit comes when selling the shares. To maximize this benefit, shares should be held for at least one year after purchase and two years from the start of the offering period. This strategy allows gains to qualify as long-term capital gains, which are taxed at a lower rate than ordinary income.
We also explore strategies for making the most of ESPP participation. We advise contributing the maximum amount allowed and discuss the importance of selling shares strategically. We note the risk of stock volatility and the potential issue of being too financially tied to one's employer.
We share a real-life example of a client, who successfully used his ESPP to fund his children's college education and boost his retirement savings. This illustrates the power of ESPPs as a tool for achieving various financial goals.
Finally, we discuss aligning ESPP participation with broader financial objectives. We stress the importance of understanding one's financial goals and how ESPPs can play a role in achieving them. You should consider your overall financial position and level of investment in your employer's stock when deciding whether to sell or hold ESPP shares.
To get in touch with Amy and her team at Thimbleberry Financial, call 503-610-6510 or visit thimbleberryfinancial.com.