Employee Stock Purchase Program

[LineSkiCat14]

I'm starting to accumulate some company stock, in two different manners (Bonus and the Employee Stock Purchase Program), and curious about what to do with it. It seems the two trains of thought are to 1. hold onto it, if you believe in the company and maybe cash out in 5-10-15 years down the road for a large lump sum. or 2. Sell either all of it, or what you put in, take the capital gains hit and avoid losing it all if something bad happens.

The ESPP takes a designated portion of our post-tax pay, holds it for 6 months, and then buys the stock at the lower of two prices (Either July 1st or December 31st). On top of that, you get a 15% discount. The first round of this, I was able to buy the stock at like $12.50/share when it really cost $17.50/share... A pretty good ROI. And the same thing is about to happen this go around where we gain like 30-40%.

I really feel strong about option 1. and holding on to it. But it seems most people, people I think are more knowledgeable than myself (I'm pretty young in my position) are flipping it the second they can. A co-worker sold what he put in and got back $800 for that half a year. BUT, I could really use some of this money back to go towards a down payment on a house and I'm kind of 50-50 on the company's growth going forward.

Anyone have any experience with this?

 

[Get Buckets]

I'm starting to accumulate some company stock, in two different manners (Bonus and the Employee Stock Purchase Program), and curious about what to do with it. It seems the two trains of thought are to 1. hold onto it, if you believe in the company and maybe cash out in 5-10-15 years down the road for a large lump sum. or 2. Sell either all of it, or what you put in, take the capital gains hit and avoid losing it all if something bad happens.

The ESPP takes a designated portion of our post-tax pay, holds it for 6 months, and then buys the stock at the lower of two prices (Either July 1st or December 31st). On top of that, you get a 15% discount. The first round of this, I was able to buy the stock at like $12.50/share when it really cost $17.50/share... A pretty good ROI. And the same thing is about to happen this go around where we gain like 30-40%.

I really feel strong about option 1. and holding on to it. But it seems most people, people I think are more knowledgeable than myself (I'm pretty young in my position) are flipping it the second they can. A co-worker sold what he put in and got back $800 for that half a year. BUT, I could really use some of this money back to go towards a down payment on a house and I'm kind of 50-50 on the company's growth going forward.

Anyone have any experience with this?

Let me gues, you are going to use the money to buy a dilapidated property.

 

[Kooky Kats]

Depends on your company’s leadership. They typically do this to cash out the principals, while not taking a tax hit.

I worked for a company 9 years, fully-vested in a 60-yo architecture firm. Partner B switched company to an ESOP, bought out the Partner A and within 4 years - bankrupted the company - rendering my once healthy bit of stock absolutely worthless.

Yeah!

 

[LineSkiCat14]

My goal in life is to be a slumlord ha.

I trust our executives. It's a grueling company to work for, but if nothing else, it's profitable. Dead weight doesn't last here and we are excelling in almost every way manageable. What worries me is, without getting too much into what my company does, is that it's facing an uphill battle with a giant in the industry. Some think it's only a matter of time before the market changes and we're just not needed.. Others, see opportunity.

 

[DSmith21]

You never want more than 20% of your investment portfolio in any one stock. Diversification is critical. I know a lot of people who used to work for National City Bank who lost most of their retirement nest egg because they kept too much it in company stock (which became worthless during the financial crisis).

 

[LineSkiCat14]

You never want more than 20% of your investment portfolio in any one stock. Diversification is critical. I know a lot of people who used to work for National City Bank who lost most of their retirement nest egg because they kept too much it in company stock (which became worthless during the financial crisis).

Yep, I agree 100%. I do already have a 6% and 6% match for my 401k along with a Roth IRA that's getting roughly $1,500 a year (had to scale that back, but hoping to increase it soon).

Those are well diversified, so am I good to be playing around with this one stock? Or still not worth it?

My hope was to one day, maybe when I'm 40, have about 30-40k in stock, in which I would pull out and use it as a DP or for something else like debt. WHat I keep forgetting, is I see that number, $40,000, not realizing a lot of that is my own money anyways, and not a number that's all-gain. So I'm thinking I should just flip the stock continuously.

A co-worker puts 25% of his salary towards it, knowing he'll get 15% discount no matter what, but probably more like 30-40%.. he takes it all back, and reinvests the 25% he put in, while taking the extra few gran he made off it, minus the gains tax.

 

[DSmith21]

Yep, I agree 100%. I do already have a 6% and 6% match for my 401k along with a Roth IRA that's getting roughly $1,500 a year (had to scale that back, but hoping to increase it soon).

Those are well diversified, so am I good to be playing around with this one stock? Or still not worth it?

My hope was to one day, maybe when I'm 40, have about 30-40k in stock, in which I would pull out and use it as a DP or for something else like debt. WHat I keep forgetting, is I see that number, $40,000, not realizing a lot of that is my own money anyways, and not a number that's all-gain. So I'm thinking I should just flip the stock continuously.

A co-worker puts 25% of his salary towards it, knowing he'll get 15% discount no matter what, but probably more like 30-40%.. he takes it all back, and reinvests the 25% he put in, while taking the extra few gran he made off it, minus the gains tax.

Why not put some percentage of your salary in the company stock and cash it out every six months or whatever is allowed? Then take those proceeds and invest them into an index fund (like the S&P 500) with a broker (Schwab, etc.). That way you take advantage of the company discount program but then reinvest your principal + gain into something safer which will grow.

 

[ukalumni00]

My father-in-law lost about $250k when GM had their financial issues awhile back. Had no diversification with his investments. Everything he invested went to company stock and relied on his pension (which GM messed with as well). I know of some others who only buy company stock and nothing else. Recipe for disaster.

A company I worked for about 12 years ago had a stock purchase program which I made a good return on when I left the company. Bought my wife's engagement ring.

My current job, I have a similar deal where I get a 15% discount. I only buy a small % of company stock more or less as "fun money" when I am ready to cash-out. I have more than enough tied into other investments to protect my retirement. If my retirement goes to crap its because the market/economy has collapsed and everyone is screwed. Company is strong and I really have no worries of it going under or the stock totally collapsing anytime soon. If it does I will not sweat it much since I am not putting a whole into it and will just wait for its value to rise again.

 

[LineSkiCat14]

Why not put some percentage of your salary in the company stock and cash it out every six months or whatever is allowed? Then take those proceeds and invest them into an index fund (like the S&P 500) with a broker (Schwab, etc.). That way you take advantage of the company discount program but then reinvest your principal + gain into something safer which will grow.

That's also probably the smartest idea. I can do this twice a year, usually a month or two after some form of "blackout" period.

This may sound dumb and I'm sure I'll get a ton of "Don't do it!".. But as much as I'd like to re-invest the money, I feel that I'm investing TOO much, and not doing enough to save for short-term things. I'm single and make decent money, a fair amount more than the national average, but i have no one to share living expenses with (roommate is moving out soon, haven't been dating a girl long enough to think about moving in).

Roughly 17% of my salary goes towards these three things, then another 5% goes towards short-term savings. Is that normal? I don't feel like I have a lot of wiggle room after that to save for a house or a down payment on something else.

 

[LineSkiCat14]

My father-in-law lost about $250k when GM had their financial issues awhile back. Had no diversification with his investments. Everything he invested went to company stock and relied on his pension (which GM messed with as well). I know of some others who only buy company stock and nothing else. Recipe for disaster.

A company I worked for about 12 years ago had a stock purchase program which I made a good return on when I left the company. Bought my wife's engagement ring.

My current job, I have a similar deal where I get a 15% discount. I only buy a small % of company stock more or less as "fun money" when I am ready to cash-out. I have more than enough tied into other investments to protect my retirement. If my retirement goes to crap its because the market/economy has collapsed and everyone is screwed. Company is strong and I really have no worries of it going under or the stock totally collapsing anytime soon. If it does I will not sweat it much since I am not putting a whole into it and will just wait for its value to rise again.

THis is pretty much where I'm at, 31 years old. Making sure I have my 401 and Roth IRA churning and growing (Although the growth is still small because of my age).

I don't plan on changing that at all. And I don't plan on putting all my eggs into the company stock bucket.

 

[mashburned]

Put all your eggs in fentanyl and Bitcoin.

 

[DSmith21]

That's also probably the smartest idea. I can do this twice a year, usually a month or two after some form of "blackout" period.

This may sound dumb and I'm sure I'll get a ton of "Don't do it!".. But as much as I'd like to re-invest the money, I feel that I'm investing TOO much, and not doing enough to save for short-term things. I'm single and make decent money, a fair amount more than the national average, but i have no one to share living expenses with (roommate is moving out soon, haven't been dating a girl long enough to think about moving in).

Roughly 17% of my salary goes towards these three things, then another 5% goes towards short-term savings. Is that normal? I don't feel like I have a lot of wiggle room after that to save for a house or a down payment on something else.

If you are saving 17% of your income, you are doing well especially if you are fairly young. First, build up a rainy day fund worth several month's salary (its going to rain sometime- car repair, big medical bill, etc). Once you have done that, start investing what is left. Prioritize your investments to those that are most taxed blessed like 401k plans, IRAs and HSAs. Your company stock purchase plan is nice but should carry a lower priority. Also if you are in a high tax bracket you might consider holding any company stock for one year + 1 day so that you can take advantage of lower long term capital gains rate vs. a higher short term rate. You will owe this off any profit that you make from the stock sale.

If your girlfriend is moving in, make sure that she shares in the bills (food, electric, cable, etc). However, if you ask her to pay rent, you may not be able to just kick her out if things fall apart.

 

[LineSkiCat14]

That's ideally what I'd like to do.. but saving that 3-6 month emergency fund is just so tough, especially when that money isn't growing and it's not used for a house or a living expenses.

So you would agree though, it might be better to flip the stock, take a small Cap Gains hit and reinvest the money, than just holding onto the stock for 5-10 years? Obviously that's hard to evaluate when you aren't sure about the company or the market.. But I guess as a general rule of thumb.

 

[DSmith21]

^ Yeah, I would participate in the stock purchase plan but sell all the stock after one year + 1 day (if you can wait that long). Then you can redeploy the money wherever you want.

 

[UKGrad93]

I'd be careful about wrapping up too much money in company stock. If something happens and the company goes up in smoke, you could lose your investment AND your job. That's always the warning I've seen attached to that stuff anyways.

Also research what options you have if you have to leave the company for any reason. I say this because my neighbor worked as an executive for a company with an ESOP, she got laid off from her executive job and went back down to store level. She was not allowed to keep her company stock. She was cashed out and handed a check. Because it wasn't a retirement plan, there were not as many options to tax shelter the money (as I understand the situation).

Here is how my money priorities went earlier in my career:
1. small emergency fund (don't want to increase debt)
2. debt
3. house downpayment
4. roth IRA/more 401k
I was in a plan at work that automatically set my 401k contribution to get the max company match (5%, they match w/10%).

 

[CatsFanGG24]

They usually cant just cash you out and hand you a check unless you were non-responsive + had $ amount that didn't meet threshold (lower than $5,000 usually). You can roll ESOPs (cash) over too.

Sounds like they did your neighbor wrong...

 

[LineSkiCat14]

Damn... a 10% match! Nice, weird that it was forced though.

 

[bigblueinsanity_rivals250340]

You never want more than 20% of your investment portfolio in any one stock. Diversification is critical. I know a lot of people who used to work for National City Bank who lost most of their retirement nest egg because they kept too much it in company stock (which became worthless during the financial crisis).

This. No way I'd trust any company with my entire retirement. No matter how well they're run, some things are just unforseen. Not worth the risk

 

[LineSkiCat14]

This. No way I'd trust any company with my entire retirement. No matter how well they're run, some things are just unforseen. Not worth the risk

Same. My 401 is through Fidelity and none of it is managed by my company nor is any of it in their stock. As of now, only 6% of my salary is tied to the agency and that's in the ESPP (Which maybe is too much).

I'm about to get a 6-month period of stock in a week or two, and I have the previous 6-months ready to go. I may dump a portion of the first cycle, but I did make some money by letting it sit from June to now.

 

[anthonys735]

Cash out and buy mediocre cajun food franchise. Good customer base and idiot proof. Then sit back and hashtag profit.

 

[LineSkiCat14]

So I did some of the numbers.. It's really not a lot of stock so for many this might not appear to be a big deal wither way.

The money I put in over 6 months was roughly $2,250 and was able to purchase the stock at the 2-factor discount above.. since then the stock rose, and I'm now at $3,750, all said and done. If I sell now I'm still in STCG and would pay my income tax (25%) or I wait another 6 months for LTCG which I think is 15%..

Diff=$1500. Short-term I pay $375 in tax. Long-term I pay $225. That look right? Really, not much of a difference, especially if I can reinvest and make that money back.

 

[dgtatu01]

I'm starting to accumulate some company stock, in two different manners (Bonus and the Employee Stock Purchase Program), and curious about what to do with it. It seems the two trains of thought are to 1. hold onto it, if you believe in the company and maybe cash out in 5-10-15 years down the road for a large lump sum. or 2. Sell either all of it, or what you put in, take the capital gains hit and avoid losing it all if something bad happens.

The ESPP takes a designated portion of our post-tax pay, holds it for 6 months, and then buys the stock at the lower of two prices (Either July 1st or December 31st). On top of that, you get a 15% discount. The first round of this, I was able to buy the stock at like $12.50/share when it really cost $17.50/share... A pretty good ROI. And the same thing is about to happen this go around where we gain like 30-40%.

I really feel strong about option 1. and holding on to it. But it seems most people, people I think are more knowledgeable than myself (I'm pretty young in my position) are flipping it the second they can. A co-worker sold what he put in and got back $800 for that half a year. BUT, I could really use some of this money back to go towards a down payment on a house and I'm kind of 50-50 on the company's growth going forward.

Anyone have any experience with this?

My dad always told me your income is already at risk with your employers fortunes, having your retirement invested in their stock puts all your eggs in one basket.

 

[UKGrad93]

They usually cant just cash you out and hand you a check unless you were non-responsive + had $ amount that didn't meet threshold (lower than $5,000 usually). You can roll ESOPs (cash) over too.

Sounds like they did your neighbor wrong...

She mentioned something about having $85k but needing to own $100k to stay in. I feel loved me there was something she could have done instead of basically cashing out and paying taxes on it. It just made me realize that I know next to nothing about ESOP, so I’d have lots of questions if I were to get into that.

 

[CatsFanGG24]

She mentioned something about having $85k but needing to own $100k to stay in. I feel loved me there was something she could have done instead of basically cashing out and paying taxes on it. It just made me realize that I know next to nothing about ESOP, so I’d have lots of questions if I were to get into that.

Yeah cash out values are for the most part $1000 or $5000 - balance over either depending on how the plan is written and you could defer distribution to next valuation. Could also roll it over no matter the size from what I have seen. She was either treated wrong or got poor advice.

 

[slick rick.ksr]

A lot of employees of a customer of mine ( large forest products company) saw their stock go from $30 A share down to $5. At that time, 20 years ago, all of their retirement was in company stock. Never a good idea to not be diversified.......see Enron Corp......

 

[buckethead1978]

Avoid the stock program. Put 18K into the 401K each year. Then move on to the Roth

I mean, you are maxing it out right?

 

[LineSkiCat14]

Maxing out at $18,000 a year? Serious question, who contributes the full amount unless they're making 125k+ a year? I'd love to put 20k into my 401k, but I just can't get close to that at my current salary. When you live/eat/drive on your own, that's going to take a large portion of my salary.

 

[buckethead1978]

Maxing out at $18,000 a year? Serious question, who contributes the full amount unless they're making 125k+ a year?

Pretty sure all of the Paddock posters do

 

[CatsFanGG24]

18500 for 2018...make sure to get that extra 5hundo in there. And if you’re 50+, throw in another 6k!

 

[Bill@ModernThirst]

They usually cant just cash you out and hand you a check unless you were non-responsive + had $ amount that didn't meet threshold (lower than $5,000 usually). You can roll ESOPs (cash) over too.

Sounds like they did your neighbor wrong...

ESOPs and ESPPs are different. Typically, ESPPs are vested automatically upon purchase. ESOPs usually have a vesting period in which you could lose them if you lose your job or it changes significantly, but they're options, not the actual stock.

 

[CatsFanGG24]

ESOPs and ESPPs are different. Typically, ESPPs are vested automatically upon purchase. ESOPs usually have a vesting period in which you could lose them if you lose your job or it changes significantly, but they're options, not the actual stock.

He said his neighbor was in an ESOP. I know about ESOPs. More than likely if you hit the eligibility requirements to receive an ESOP contribution, you are going to be at least partially vested - and if she was cut a check she was def vested to some %. I don’t know a thing about ESPPs.

 

[jameslee32]

Don't put all your eggs in one basket. Sell half. Buy shares of a totally different business.

 

[jameslee32]

Avoid the stock program. Put 18K into the 401K each year. Then move on to the Roth

I mean, you are maxing it out right?

I personally would not do this unless you have the best plan, with the lowest possible fees and the best choices of investments. Otherwise, invest up to the company match and use the rest to fund your own researched stocks or an S&P index fund from Vanguard for example.

 

[UKGrad93]

ESOPs and ESPPs are different. Typically, ESPPs are vested automatically upon purchase. ESOPs usually have a vesting period in which you could lose them if you lose your job or it changes significantly, but they're options, not the actual stock.

He said his neighbor was in an ESOP. I know about ESOPs. More than likely if you hit the eligibility requirements to receive an ESOP contribution, you are going to be at least partially vested - and if she was cut a check she was def vested to some %. I don’t know a thing about ESPPs.

In regards to my neighbor, I'm not sure if it was an ESOP or ESPP. I didn't realize that there were two different things.

I just know she talked a bunch about owning stock in the company and how she & her husband would have $6-7M at age 55 and retire. Then she told me that they gave her a check last year when she was laid off from corp. They used the money for new carpet and down payment on a new car. She didn't like driving a car to work that was older than what the lower level employees were driving. <image>

 

[Bill@ModernThirst]

He said his neighbor was in an ESOP. I know about ESOPs. More than likely if you hit the eligibility requirements to receive an ESOP contribution, you are going to be at least partially vested - and if she was cut a check she was def vested to some %. I don’t know a thing about ESPPs.

The standard ESOP vesting period is 4 years, and you begin accumulating vested equity after 1 year. She would basically start vesting equity about 25% per year after year 1. It seems weird that there was no option to exercise the vested rights or roll them over unless the entire program was cancelled or the company went private/reorganized/etc.

 

[Bill@ModernThirst]

In regards to my neighbor, I'm not sure if it was an ESOP or ESPP. I didn't realize that there were two different things.

I just know she talked a bunch about owning stock in the company and how she & her husband would have $6-7M at age 55 and retire. Then she told me that they gave her a check last year when she was laid off from corp. They used the money for new carpet and down payment on a new car. She didn't like driving a car to work that was older than what the lower level employees were driving. <image>

Then that would likely be the un-invested portion of her ESPP, from the sound of it.

 

[CatsFanGG24]

The standard ESOP vesting period is 4 years, and you begin accumulating vested equity after 1 year. She would basically start vesting equity about 25% per year after year 1. It seems weird that there was no option to exercise the vested rights or roll them over unless the entire program was cancelled or the company went private/reorganized/etc.

Most I see are 2-20%, 6 year graded vesting schedules but they can certainly be more lenient towards the employee if the company would like. I would say his neighbor was dealing with an ESPP as well.

 

[AlbanyWildCat]

Maxing out at $18,000 a year? Serious question, who contributes the full amount unless they're making 125k+ a year?

All Paddock folks do this...come on.
But seriously, you should be looking to save that much for retirement YEARLY.

 

[BankerCat12]

Did you end up buying the duplex you were looking at?

Not sure what you are making, but you should do the absolute max you feel comfortable with

 

[LineSkiCat14]

Did you end up buying the duplex you were looking at?

Not sure what you are making, but you should do the absolute max you feel comfortable with

Still working towards that. By Spring I should be fine.. Holiday spending is my downfall and spent more than I should. I've also upped some retirement funds.. so it's a tough balance trying tos ave for a house and also put more towards retirement. Doesn't leave me with much left over, so the process is slow but steady.

Another issue is settling down. Still early, but I'm starting to think if I should do a starter home, save the landlord headache, spend much less in DP/Mortgage.. But IDK..