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[Video] What Is An Employer Stock Purchase Plan

by Financial Design Studio, Inc. / April 1, 2019

[Video] What Is An Employer Stock Purchase Plan

STEPHEN & MICHELLE SMALENBERGER, EA, CFP®

One question I hear often is should I participate in my Employer Stock Purchase Plan. So let’s first talk about what it is and then some considerations around it.

Employer Stock Purchase Plan (ESPP)

What is it? Often times this is a company that is publicly traded allowing you to buy into or have ownership of a company.  You do that through payroll deductions, meaning they take money from your paycheck periodically and allow you to buy stock in the company at different periods. This is often two six month periods known as off-link periods and you are able to deduct money from your paycheck in dollars or a percentage. The cap is $25,000 per year.

So you are able to take money from pay check and buy stock up to 15% of the fair market value. So if you save it, it is treated just like wages. If yo hold it for a year from the day of purchase, it is long term capital gains.

Increase Of Value?

There is another part of this decision you want to understand. It is not just any company stock. You are investing in you employer’s company stock. You need to consider if this is a good one I actually am going to see an increase in value. Maybe you will and maybe you won’t.

Over Allocation

This is the second part of the decision and also a factor how much you are going to invest. We don’t want to be over allocated to our company stock and again you’re company is who is paying your salary and benefits. Now you are buying their stock. How much you have allocated and invested in one company, your finances are now all allocated in this company so you have to be aware of these risks too.

Historic Value

It could be a great option or it might not be. You’ll want to take a look at historically how is has been going and that will help you with how it will do in the future. That 15% discount can be a great option too.

So to think through this, we may want to allocate something to it, but lets make it a part of your over all plan. We do want to consider it a part of your over all plan. We want to make sure we aren’t over allocating to one company either. If this has sparked some interest, let us know. We can review the details with you.

Wondering how this affects your financial future? Schedule a call with Michelle and Steve to discuss your portfolio today.

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Financial Design Studio, Inc.

Financial Design Studio, Inc.

We are financial advisors in Deer Park and Barrington, IL. A team with a passion for helping others design a path to financial success — whatever success means for you. Each of our unique insights fit together to create broad expertise, complete roadmaps, and creative solutions. We have seen the power of having a financial plan, and adjusting that plan to life. The result? Freedom from worrying about the future so you can enjoy today.