Your Employee Stock Purchase Plan (ESPP) – What You Need to Know

Participating in an employee stock purchase plan can be a smart way to build your investment portfolio, and a good way to save for retirement. The key is to understand both the potential advantages and the possible pitfalls of these popular programs. 

Your Employee Stock Purchase Plan (ESPP) – What You Need to Know

 The same research that goes into any stock purchase applies to these plans, and it’s important to assess the financial health and future prospects of the firm with an unbiased eye.

Understand Your ESPP Discount

Know When You Can Sell Your ESPP Shares

It’s important to thoroughly read the fine print before signing up for an ESPP.  Be sure to find out when you can sell your shares and how many shares you can sell. Understanding all the ins and outs of the program before you get started is essential.

One of the advantages of an employee stock purchase plan is that it forces you to save and invest. Forced savings can be useful to help instill the kind of discipline needed to build a large portfolio over time.

Forced Savings in Your ESPP Can Be a Good Thing

Avoid Single Stock Concentration in Your Investment Portfolios

It’s a good idea to examine your portfolio at least a couple times a year, looking at not only your company stock in your ESPP, but other stocks and mutual funds you own. If you find that your portfolio is overweight in your company stock, you can sell those shares and rebalance into other areas.

The percentage of that tax will depend on a number of factors, including how long you held the shares and your level of household income. It is always a good idea to talk with your financial advisor or accountant about the tax implications of selling company stock.

ESPP Tax Considerations

An ESPP should not be your only investment, and it is important to diversify your holdings. But if your employer offers such a plan, it is definitely worth your consideration.

If you work for a large publicly-traded US employer, there’s a good chance you have an opportunity to participate in an employee stock purchase plan or receive other forms of equity compensation as an employee benefit.

Major US Companies Offering ESPPs

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