How to Maximize Your Employee Stock Purchase Plan

What is an Employee Stock Purchase Plan (ESPP) and how does it work? How should you incorporate it into your financial life and what’s the most important decision to make prior to enrolling?

It’s easiest to understand how an ESPP works by first understanding the four different periods:

  • Enrollment Period: Where you decide whether or you’ll participate and, if so, how much you’ll contribute;
  • Offering Period: Typically lasts six months and is when your employer starts to deposit funds straight from your paycheck into an account where they will accumulate;
  • Purchase Period: Where the money you’ve contributed over the prior six months is used to purchase shares of stock, and, more importantly, where the two primary benefits of the ESPP come into play;
  • Hold or Sell Period: Now that you own the stock, do you keep them or sell them? What tax considerations do you need to be aware of?

Far too often investors let taxes influence their behavior in a detrimental way. Not to discount the importance of tax-efficiency because it is crucial to a sound investment process, but there is a time and a place to acknowledge that taxes should be paid to mitigate risk. Participating in an Employee Stock Purchase Plan is one of those times as attempting to avoid taxes can result in accumulating too much employer stock and tying too much of your financial fortunes to one entity.

We hope you enjoy the video and please let us know if you have questions!

 

Ryan Smith
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Born and raised on the North Shore of Massachusetts, I moved to Raleigh in 2011 to marry my wife, Emily. We have two kids, Jack and Gwen, and are members of Church of the Apostles in North Raleigh. I have been a Wealth Advisor since 2005 and earned a Master’s of Science in Financial Planning from Bentley University. Soon thereafter I became a CFP® professional and received my Retirement Income Certified Professional® designation in 2015.