Employee stock purchase plan

does anyone here take their discounted stock and sell it immediately? or do you buy and hold?

I sell it immediately. I figure I’m already financially exposed enough to my company working there, and my investment strategy is 100% index funds, not a single specific stock.

More importantly, the tax saving upside is vanishingly small compared to the risk. Let’s say they give you a 10% discount.

  1. The ESPP money that goes into the purchase is already after-tax. So the tax is only on the 10% (or whatever) discount.
  2. If you wait a year to get the 10% tax bracket, instead of regular income 28% or so, you save 18% of 10%, or 1.8% of the total price.
  3. Which means waiting a year makes you 1.8% of your initial investment.

Personally, I don’t think #3 is remotely worth the downside risk.

I know lots of people that buy and sell. I try to sell when the stock is at its highest, the chance that thats going to be at the same time the stock is issued seems unlikely.

Just like anything else that has to do with stocks, study the trends and make an educated pick. My company has an annual trade show where we hit the press releases and major announcements pretty hard. That tends to inflate our stock price. In general thats the time I sell stock.

sell it right away. pocket that 10% discount asap.

You’re lucky you’re allowed to sell whenever you want. Our company has very strict policies to prevent insider trading. No one is allowed to sell stock outside of very specific, week-long trading windows that are open 4x per year a week or two after the company quarterly earnings call.

I’d have to marry a member of our founders family to get my hand on our stock :-(

Yeah, this thread really applies only to public companies.

The chance that you can actually predict when the stock is going to be the highest is also unlikely.

If your stock is so predictable that you can tell when it’s going to go up, buy loads of options right before then, and make a real killing.

The stock market isn’t a garunteed return on your money, but it also isn’t a roulette table. Intelligent, informed analysis and decisions do help improve your percentage of good decisions even if they never get you 100%.

And I wish my companies stock price got the kind of bump where I could make a killing, unfortunately it’s more mild than that.

I say this as someone who put 7k into the stock market 14 months ago (after the crash) and worked it up to 21k now. Thats a better return than I would get investing in my companies stock before the trade show. It also isn’t anything that I can replicate now, I was just taking advantage of the conditions (a bottomed out market and a government willing to step in and fix things).

There are tax advantages for holding ESPP for 1 year after you acquire the stock and more than 2 years after the grant was offered. If you satisfy both requirement all profits are taxed at the lower cap gain (15%) level rather than as ordinary income.

Here is example for a typical ESSP program which allows purchases twice year and offers a 15% discount from fair market value (FMV) at the lower of the beginning or end price.

In June 30, 2009 the stock is $50 as of Dec 31, 2007, the stock has risen to $80, so the 15% discount enables you to buy the stock at $42.50. You have contributed $4,250 toward the ESSP so you purchase 100 shares. If you sell immediately you would owe (assuming a 28% fed tax bracket) $1,050. If you wait 18 months until July 1, 2011 your taxes drop to $562. Of course the stock can rise or fall in the next 18 months and if drops below ~$75/share you are losing more than tax savings gain. However, the tax savings is equivalent to a 4% additional annual return with relatively low risk. In addition there is always the chance stock would go up in the next 18 months.

What I while working I kept the stock until the 2 year period was up and then sold it. Obviously their are significant risks to having your job and at good chunk of your net worth tied to one company. If the situation was different at the stock went from $50 to say $40 between June and Dec. I’d be inclined to sell it for the reasons Jason suggested.

Fairmark.comhas a great write up on the tax consequences of ESPPs.

thanks for the advice everyone. i decided to sell 75% and keep the rest. maybe i’ll make a poll asking whether i should waste my money on a flip hd, a kindle, or a chumby.

Be careful to research the implications of stock options to your exposure to the Alternative Minimum Tax. I remember reading some stuff that frightened me about people that got stock options when their company was flying high only to find that the “income” they got because they received the stock at a discount was taxable even when the stock itself was later worthless.

I always sold mine immediately. My theory was I didn’t want both my paycheck and my investments dependent on the same company. If the company tanked, I’d be in serious trouble.

ESPPs have no AMT implications so this isn’t something russell needs to worry about. BUT… there was an AMT relief act passed a couple years ago to help out the people who were affected by that during the dotcom era.

Basically AMT becomes an issue when you are blessed with either a real or a potential long-term capital gain that is near to or that exceeds your regular income.

So if you exercise ISOs that have a $20,000 bargain element (fancy term for a potential long-term capital gain), you probably won’t have to pay AMT if your salary is $100,000. But you probably would have to pay AMT instead of income tax if your yearly salary was $30,000.

This thread title makes me laugh. Back when I worked at Best Buy, our General Manager would push the employee stock program extremely hard at store meetings. It was such a joke. Yeah, like I’m gonna invest money from my paycheck in stinking retail stock. You bought it at a 15% discount, but you had to hang on to it for at least a year! The way management tried to sell it to hourly employees, it was almost a con.

I got into the ESPP, but then I started thinking about it and decided I didn’t want that many eggs in one basket so I sold. Our ESPP has a rule that if you sell any shares, you can’t buy more for the rest of the year. And the discount is only 5%. I made out pretty well from being in it, but I have more piece of mind being out of it.