Wondering who has had experience with ESPPs and if you are pleased you contributed or would rather have not. Looks like discounts vary but can be up to 15% off, maximum of $25k pre-discount purchased in a year.
I’m considering reallocating some or all of my non-retirement investments to one going forward. Already have 1 year’s salary sitting in diversified domestic/international ETFs and would just let that continue to do its thing to dampen the extra volatility.
I’ve done them, but I usually systematically dumped the stock on a rotating basis.
Definitely participate and take max advantage of the discount. That’s just free money.
But I’d always donate appreciated stock to charity. And if it depreciated then I’d usually still sell (and donate the proceeds to charity).
You already have so much financial exposure to your employer, so I wasn’t especially looking to materially increase it.
Just don’t ever donate depreciated stock to charity!
Beware that “appreciated” & “depreciated” is relative to the value at the time of purchase. If your employer does it right then the value of the discount is W-2 taxable wages the year you sell (even if you’ve left the employer). So say the stock is worth $100 when you buy it, so with the discount you buy it for $85 and you sell it for $90.
You have $15 of wages and a $10 capital loss.
Many employers don’t do it right though and you’ll end up just reporting a $5 capital gain. That’s wrong, but common. Less common in 2021 than when I first started buying ESPP shares in the 90s.
I invested the max every paycheck for 5 years. Now I have 6 figures invested in a company that laid me off.
The discount really juiced up my gains. Maybe I would have sold immediately to invest in an index fund so I wouldnt be stuck with a shit ton of company stock, but then I would have missed out on those sweet sweet gains
Two things to note. One, some/many companies have a mandatory holding period, meaning you might not be able to sell it for some amount of time. Worth knowing. Two, at least at my prior employer, the amount invested is calculated using gross income, but it’s taken from net income, so if you contribute 10%, it’ll ding your take-home by >10%.
I was in one. Came out a little ahead, vs investing cash in my mattress, due to the discount. Maximum was much less than 25K, maybe 5K or 10K. I think discount was 10% or 15%. Potentially even more, since the price was 90% (or 85%) of the stock price at the start of the year. So if the stock went up x%, the discount at least for funds contributed early in the year was x+10% or x+15%. Stock didn’t do so well. At least one year, it dropped by more than the discount would be. So instead of investing our payroll deductions at a price higher than the market price, we just got the deductions back, without interest.
There are tax reporting complications, I believe. Rather than figure them out, I just reported the difference between proceeds and payroll deductions as long term capital gains (the stock had been held over 1 year). Don’t think that was right, but amount was small. Maybe that was even right, but the instructions were too confusing for me. [ninja’d by twig. I had left the employer, and it didn’t send me a W-2.]
I still have some company stock in some past employers. Once I no longer worked there I no longer had so much exposure so I held onto the shares.
One got sold for a small loss when I bought a house before I was credentialed. One has super duper tanked and the other has skyrocketed.
Fortunately I sold a bunch of the second stock when I made a major purchase and donated some to charity… all before it tanked. But what I have left is now worth so little I may as well hold onto it and hope for a long slow recovery.
Or sell it when I have large gains on some other stock to offset the taxable gains.
I haven’t sold any shares since becoming a certified VITA tax preparer and it certainly hasn’t come up on an exam or a taxpayer.
I’m honestly a little unclear on whether there ever becomes a point where the value of the discount just rolls into the capital gain or loss. I’ve read it both ways in different brokerages publications and the IRS publications are virtually silent on the issue.
Personally I have always taken the approach that if it shows up on a W-2 then obviously that piece is taxable wages and I calculate the gain or loss using the non-discounted price.
If it doesn’t show up on the W-2… I’ve always said “screw it” and just calculated the gain or loss from the discounted price.
I’m positive there’s times it should’ve shown up on a W-2 and didn’t. I’m less positive if that’s every time it hasn’t shown up on a W-2 or just some of them.
I’ve never had the IRS question what I’ve done. 
It sounds like free money. I just would control it so that your net worth never rises above 10% in that company. Obs, if you can rebalance like Twig suggests, that would be the best.
How illiquid is it?
I have worked for different stock companies with different levels of control over my transactions in company stock. My current employer is the most strict, with transactions limits to BOTH small windows within the quarter after earnings announcements and prior written application and authorization.
Note that sometimes the rules are more relaxed for donating ESPP stock to charity than selling it.
Donating stock is a great deal if the stock has appreciated and you were going to donate to the charity anyway.
am I a scrooge? I never donate any meaningful, tax altering, amount of money to charity
I did it before. But left the company a year after so not sure if I got any discount or not.
I just treat the discount as if the stock had risen by that amount, which was quite significant.
I did so for several years at an employer with no holding period. 15% discount, could sell right away. I might not have done so if the employer had a holding period.
Maybe?
I follow the biblical instruction to tithe, which means 1/10th of my income. Hubby is also on board with this, so we do 1/10th of our joint.
Although now with the SALT cap and the high standard deduction we alternate and do double donations in odd years and nothing in even years.
But not really. We’re essentially just a few days “late” on our donations in even years. So we donated 10% of our 2020 income on January 1, 2021 and we’ll donate 10% of our 2021 income in the next couple of weeks. So technically it’s double or nothing on our taxes, but we’re basing it on each year’s income and the charity is getting money from us in approximately one-year intervals.
We also make 13 mortgage payments in odd years and only 11 in even years.
I’m a pretty big tax 
And a pretty big in general. So maybe I’m a little stingy on the 10% calculation. It’s after-tax on the theory that the money we pay in taxes was never really ours. And after-union-dues for the same reason. And we don’t tithe on retirement contributions on the theory that we will tithe on the distributions when we’re retired.
And some say it should be 1/10th to your church and then if you make other donations it’s on top of that. We don’t do that. We mostly contribute to churches and other need-based charities although I do count the arts organizations too. That’s a small piece of the total though.
Someone might say that amounts to less than a full tithe, but that’s what we do.
It’s a 5-figure amount every year.
Maybe you are.
It’s not that the amount is tax-bracket altering, but consider that the effort of donating stock (appreciated stock) is pretty easy.
Say you bought a share of stock for $50. Now it is worth $100.
You could sell the stock, pay $10 in taxes on the appreciation , and give the charity the $90 proceeds. You get a $90 tax deduction. Yippee, everbody wins, even the gubbmint.
Or you donate the stock to charity directly, they get $100 and you get a $100 tax deduction. You get more tax deduction, the charity gets an extra $10. Win Win for you and charity, 
for Uncle Sam
Yeah, this is the reason you should donate appreciated stock. The tax on the capital gain just disappears into the ether.
If your tax bracket is 20% and there’s a 1% transaction fee on the stock sale and you bought the stock for $50 and it’s currently worth $100…
Sell the stock & keep the proceeds:
you net $79.20
charity nets $0.00
total net $79.29
Sell the stock & donate the proceeds:
you net $9.80
charity nets $99.00
total net $108.80
Donate the stock:
you net $20.00
charity nets $99.00
total net $119.00
Donating the stock vs keeping the proceeds for yourself only costs you $59.20 but the charity gets $99.00.
We have 2 401ks currently and only 1 gets maxed out… I’m weighting the benefits of investing heavily in the ESPP, after the one 401k is maxed and the other hitting the contribution matching, or just work on maxing the other 401k.
On one hand the 401k tax benefit is just better, in the long term.
On the other the ESPP will actually be usable, subject to minor holding restrictions.
Do you mean max out the employer match or max out the employee contribution?
You definitely want to max out the employer match. That’s free money.
But so is the discount on the ESPP. If it’s a 15% discount and you can set aside 10% of your income, it’s like getting a 1.5% raise that has some strings tied to it.
Picking nits, it’s a 15% discount… if you buy at $85 and sell at $100 it’s a ~17.6% gain. So it’s more like a 1.8% bonus. I thought I’d point it out, I know how many of you come here for the pedantry. Or at least that’s part of what I enjoy about this place, lol.
former colleague described his maximizing. we could do like $24K a year on 2 dates, 6 months apart. have to prefund so need to set aside 2K per month in advance of first date. Then bought at a 5% discount and immediately sold (immediately was after a 3 day lag for something).
the inconvenience of the pre-funding (only in effect the first 6 months, as you can get it in lump after 6 months), plus the 3 days of risk, plus paying tax on the ordinary income - it was a lot of engineering to squeeze <$1K a year net of taxes.
Maybe if 15% discount I’d see it as worth it?
I’ve never not hit the employer match, that’s a given. I mean I’m deciding between maxing out $20,500 on the second 401k, or keeping that at whatever % we set it at (I think it’s probably around $8-10k/year, well above the match) and going in on the ESPP.
Basically thinking on the 15% discount of a taxable ESPP vs. the tax-advantage of an extra ~$10k into the other 401k. We don’t have enough spare income to do both.
Agreed, if it ends up being 5% then I won’t even consider doing an analysis. The liquidity won’t override the 401k tax benefits for me.