ESPP

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Gixene
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ESPP

Post by Gixene » Mon Mar 20, 2017 12:39 am

Bogleheads,

Note: Questions at end of post.

I've always had a negative view of ESPP. First employer filed for bankruptcy, went private by a leveraged buyout holding company. Second employer required I hold the shares for a year after purchase. Third employer lead a wild goose chase to take advantage of 401k options (which I was never able to contribute to). Though I wouldn't have bought a share from the company, the company had a lot of debt in an industry known to have the smallest profit margins. Two years later the company is bought out by an foreign company.

The other day, I was speaking with the branch manager (I'm a personal banker). We were discussing the rise of the Federal interest rates. I told him that I've invested and made profits off of a few of the banks since the recession from a value investing perspective. Note: This is investing in taxable account that is a 'hobby' and not relied upon for retirement. I told him that I'm more bullish on financial institutions with the rise in interest rates and that I may invest in these individuals.

He asked, "Why don't you invest in our bank?" I immediately became opposed to his idea. I've seen our employer promote ESPP, but from my experience I didn't hesitate to show the negative ideology I had. "I would never hold our stock unless it was in my brokerage account." I told the him. He said, "Well you are passing up a 20% discount on shares." I explained, "I wouldn't hold our company stock until being vested." He quickly mentioned, "You can sell the shares the day you bought it."

We actually discussed this before a meeting, but I was quite shocked. I had been missing out on this benefit for over two years while being employed with this company. I was running numbers in my head while still in disbelief that I could be vested and essentially make a 20% profit. Though I thought I would visit our HR website and find more information. I listed this information below.

Obviously you know I work for a bank. Obviously, I would sell the shares immediately. I have given quite a bit of personal information about myself here on Bogleheads and wouldn't feel comfortable disclosing the company. I personally feel confident in this financial institution. The financial insulation isn't a US based financial institution. It is a conservative financial institution due to its countries strict regulations. We are a primary dealer of 22 financial institutions for the Federal Reserve of the Federal Reserve System. I feel as if only the strongest of financial institutions are apart of this.

Your Employee Share Purchase Plan (ESPP) is designed to encourage you to become an owner of [employer] by allowing you to buy [employer] common stock at a discount.

How it works

You make regular contributions to the plan through after-tax payroll deductions.

Your contributions accumulate.

Each quarter, your accumulated contributions and any dividends paid are used to purchase [employer] common shares at a discount.

[employer] contributes the value of the discount.

Over time, your shares and dividend payments accumulate in your account(s).

The value of your account(s) depends on your contribution level, [employer] share values and dividends paid.

Managing your ESPP accounts

You can view balances and access your account via http://www.xxxxxxxxxxxxxxxx.com. Click on Share Purchase under My Accounts

For questions and information not available online, call 1-xxx-xxx-xxxx.

For more information about this plan and about share ownership, see the Employee Share Purchase PDF

Employee Share Purchase Plans

The [employer] Employee Share Purchase Plan lets you invest in [employer] shares at a discount. Employees can buy shares at a price 15%* less than market value. If you choose to buy shares you’ll be more than an employee — you’ll be a shareholder. We recognize that employees are the most important factor to [employer]’s success, and we want to share that success with you.

*Nonqualified Plan: Due to IRS code, U.S.-based employees of the [employer] cannot participate in the qualified plan. Therefore, they will participate in a similar plan, the Nonqualified Employee Share Purchase Plan. In this plan, the discount is 20% instead of 15% because of more favorable tax treatment for employees in the Qualified Plan.

Highlights

Following is a general summary of how the plan works. Further details appear in the next section.

You may elect to contribute 1% to 15% of your pay on an after-tax basis (your “pay” is your current base pay rate or your Benefits Base Rate).

Enroll via phone or online during an enrollment period (before the start of each quarter). You will need your temporary PIN.

Once enrolled, after-tax contributions will be deducted from your pay.

Each quarter, [employer] common shares are purchased at a discount (i.e. 15% for the Qualified Plan and 20% for the Nonqualified Plan), with contributions that were withheld from your pay. The Company pays for all brokerage and/or administrative fees associated with the purchase.

Shares are credited to your account within 5 business days following their purchase.

Cash dividends are automatically reinvested, less 15% withholding taxes for U.S. residents.

Track the value of [employer] common shares by checking “[employer]” on the NYSE listings or visit the plan site online. (Also, you will receive a quarterly statement.)

You may stop your contributions, change the percentage or request a refund.

You can sell your shares at any time and receive a distribution in cash. You can request your shares in Direct Registration (DRS), or transfer your shares to another broker. You pay all brokerage and/or administrative fees associated with these transactions. Note: If you have been identified as a trading window restricted employee, before executing any dispositions, you must check to ensure the trading window is open by accessing the site at: [employer] Corporate Compliance – http://xxxxx.xxxxx.net/Corporate/Compli ... ading.aspx. Alternatively, you may call 1-xxx-xxx-xxxx for confirmation the window is open.

Questions.

1.) Last year I contributed 18% after retirement savings towards a downpayment on a home. Should these funds be put towards ESPP to take advantage of gains?

2.) It mentions distribution in cash. Does this mean in the form of a paycheck where it's taxed once again? What is the most tax efficient distribution of these funds? I'd prefer to allocate it to a Redneck Mega Money Market which holds a fund consisting of a downpayment of a home. Unless it is better to place these funds elsewhere.

3.) Should I contribute the maximum of 15%? If not, how much should I contribute?

Thank you,

Gixene
Last edited by Gixene on Mon Mar 20, 2017 12:46 pm, edited 1 time in total.

djheini
Posts: 25
Joined: Fri Jul 29, 2016 5:53 pm

Re: ESPP

Post by djheini » Mon Mar 20, 2017 8:21 am

Gixene wrote:1.) Last year I contributed 18% after retirement savings towards a downpayment on a home. Should these funds be put towards ESPP to take advantage of gains?

This is up to you. It isn't completely risk free, as what you posted says there is about a week between when the shares are purchased and when they're available to sell in your account. There is always a chance that the market could plunge during that week, and you would lose some of the value of your purchased shares. Additionally you will probably not earn any interest on the money between your paycheck dates and the purchase date of the stock. It's up to you if the 15% discount is worth these risks (I would probably lean towards yes)

Another risk to look in to is if your employer has any pre-clearance or trading window restrictions - this could potentially prevent you from selling immediately, thereby increasing the risk of the share price decreasing between your purchase date and when you can sell the shares.

Gixene wrote:2.) It mentions distribution in cash. Does this mean in the form of a paycheck where it's taxed once again? What is the most tax efficient distribution of these funds? I'd prefer to allocate it to a Redneck Mega Money Market which holds a fund consisting of a downpayment of a home. Unless it is better to place these funds elsewhere.

It shouldn't, it would be just like if you sold shares in a taxable account - you'd get the money for the value of shares minus any commissions/fees for the sale. The only tax should be on any gains between when you bought and sold the shares, which if you sell ASAP should be fairly small. And if you do have a gain that you must pay taxes on, that's a good problem to have. I also believe the 15% discount will count as ordinary income when you do your year-end taxes. Once you sell and have the funds, they're just like regular cash and you can put it wherever you want.

Gixene wrote:3.) Should I contribute the maximum of 15%? If not, how much should I contribute?

That's a personal choice for you, as I mentioned in #1. In the past when I've had ESPP opportunities that were worthwhile, I've gone in up to the max.

lazydavid
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Joined: Wed Apr 06, 2016 1:37 pm

Re: ESPP

Post by lazydavid » Mon Mar 20, 2017 8:38 am

Wow, that's the best program I've seen. Usually the 15%+ ones are a 6-month or even one year contribution period. Mine, by comparison is a 5% discount on a 3-month contribution period. I definitely think mine is worth it, so yours is a slam dunk at 4x the return!

You absolutely should take full advantage of the program. You can still use the proceeds to fund the downpayment on your house, you'll just be doing it on a quarterly basis instead of biweekly, with the 20% bonus. My ESPP is prefunding the replacement of my wife's car later this year. Money is fungible, so you can use it for whatever you like.

If your employer's broker allows fee-free sales (mine does not), you can go ahead and liquidate in your employee account, and take the cash proceeds. That would be the simplest process, as the ordinary income (the discount) and STCG/L (any change in value from the basis) will be calculated automatically for you. You will not be taxed on the full disbursement as income when you take it. Alternatively, transfer the shares to a broker that does not charge a transaction fee and liquidate there. This is what I do. I wind up with a couple extra days' exposure to the market, but my company's stock is relatively stable, so it's usually just a small swing one way or the other. In my case, my basis usually comes across as $0, so I have to correct this with my broker, which just takes a quick email.

Alto Astral
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Re: ESPP

Post by Alto Astral » Mon Mar 20, 2017 11:41 am

Do it. I used to max it with a former employer. Sold it as soon as I could.

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DaftInvestor
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Re: ESPP

Post by DaftInvestor » Mon Mar 20, 2017 1:26 pm

"Shares are credited to your account within 5 business days following their purchase."
"You can sell your shares at any time and receive a distribution in cash"

Unless the shares drop in value by 15% after they are bought but before you get a chance to sell them - this is essentially free money to you. You should max out.
Q1: Yes - max this plan out in whatever way you can. Its practically extra-money-in-the-bank that you should take advantage of.
Q2: They won't tax you on the same money twice. You will get taxed on any gains as with any investment.
Q3: Yes - MAX IT! You will be glad you did. Just be good about SELLING right away - as soon as the shares show up in your account. Don't let others at your company convince you to hold for 1 or 2 years to get better tax treatment or for other purposes. Sell right away and reinvest wherever you need to.

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Gixene
Posts: 30
Joined: Sat Jul 05, 2014 7:32 pm
Location: Indiana

Re: ESPP

Post by Gixene » Mon Mar 20, 2017 1:35 pm

djheini wrote:
Gixene wrote:1.) Last year I contributed 18% after retirement savings towards a downpayment on a home. Should these funds be put towards ESPP to take advantage of gains?

This is up to you. It isn't completely risk free, as what you posted says there is about a week between when the shares are purchased and when they're available to sell in your account. There is always a chance that the market could plunge during that week, and you would lose some of the value of your purchased shares. Additionally you will probably not earn any interest on the money between your paycheck dates and the purchase date of the stock. It's up to you if the 15% discount is worth these risks (I would probably lean towards yes)

Another risk to look in to is if your employer has any pre-clearance or trading window restrictions - this could potentially prevent you from selling immediately, thereby increasing the risk of the share price decreasing between your purchase date and when you can sell the shares.

Gixene wrote:2.) It mentions distribution in cash. Does this mean in the form of a paycheck where it's taxed once again? What is the most tax efficient distribution of these funds? I'd prefer to allocate it to a Redneck Mega Money Market which holds a fund consisting of a downpayment of a home. Unless it is better to place these funds elsewhere.

It shouldn't, it would be just like if you sold shares in a taxable account - you'd get the money for the value of shares minus any commissions/fees for the sale. The only tax should be on any gains between when you bought and sold the shares, which if you sell ASAP should be fairly small. And if you do have a gain that you must pay taxes on, that's a good problem to have. I also believe the 15% discount will count as ordinary income when you do your year-end taxes. Once you sell and have the funds, they're just like regular cash and you can put it wherever you want.

Gixene wrote:3.) Should I contribute the maximum of 15%? If not, how much should I contribute?

That's a personal choice for you, as I mentioned in #1. In the past when I've had ESPP opportunities that were worthwhile, I've gone in up to the max.


In reply to your answers.

1.) I do not believe I am identified as a trading window employee. However, this may be something I should call using the "x"ed phone number in the original post. I'm a low man on the totem poll, so I don't hear any 'whisper numbers' and I certainly wouldn't be foolish enough to estimate earnings numbers based on foot traffic at my particular branch. Though I will call this phone number and inquire.

lazydavid wrote:Wow, that's the best program I've seen. Usually the 15%+ ones are a 6-month or even one year contribution period. Mine, by comparison is a 5% discount on a 3-month contribution period. I definitely think mine is worth it, so yours is a slam dunk at 4x the return!

You absolutely should take full advantage of the program. You can still use the proceeds to fund the downpayment on your house, you'll just be doing it on a quarterly basis instead of biweekly, with the 20% bonus. My ESPP is prefunding the replacement of my wife's car later this year. Money is fungible, so you can use it for whatever you like.

If your employer's broker allows fee-free sales (mine does not), you can go ahead and liquidate in your employee account, and take the cash proceeds. That would be the simplest process, as the ordinary income (the discount) and STCG/L (any change in value from the basis) will be calculated automatically for you. You will not be taxed on the full disbursement as income when you take it. Alternatively, transfer the shares to a broker that does not charge a transaction fee and liquidate there. This is what I do. I wind up with a couple extra days' exposure to the market, but my company's stock is relatively stable, so it's usually just a small swing one way or the other. In my case, my basis usually comes across as $0, so I have to correct this with my broker, which just takes a quick email.


Okay, so I looked at the fee schedule for selling shares in the ESPP with Computershare. Here is the information.

To sell your shares, simply contact Computershare online or by phone. There is a $20 transaction fee and for each share sold, an additional fee of $0.07 per share is deducted from the proceeds. Requests to sell shares can be made with one of the following two options:

I can purchase 15% of base compensation. The PPS is high (not by valuation, by price), so 15% during a quarter would afford 15 shares. To sell the shares with Computershare, it would cost $20 + 15 x $0.07 = $21.05

I also looked at transferring the shares from Computershare to Scottrade brokerage account. Here is the information.

How to transfer shares
You may transfer the shares you own into a Direct Registration (DRS) position. Computershare will move all or part of your holdings in whole shares.

To sell your shares, simply contact Computershare online or by phone. There is a $20 fee for transferring shares into a DRS position. Please allow two to three weeks for processing.

You may also transfer your shares to another broker upon request. There is also a $20 fee for this type of transfer.


To transfer to Scottrade and sell the shares, it would cost $20 + $7 = $27. So, I save $5.95 selling the shares with Computershare.

Alto Astral wrote:Do it. I used to max it with a former employer. Sold it as soon as I could.


I completely agree, I will sell the shares as soon as possible.

DaftInvestor wrote:"Shares are credited to your account within 5 business days following their purchase."
"You can sell your shares at any time and receive a distribution in cash"

Unless the shares drop in value by 15% after they are bought but before you get a chance to sell them - this is essentially free money to you. You should max out.
Q1: Yes - max this plan out in whatever way you can. Its practically extra-money-in-the-bank that you should take advantage of.
Q2: They won't tax you on the same money twice. You will get taxed on any gains as with any investment.
Q3: Yes - MAX IT! You will be glad you did. Just be good about SELLING right away - as soon as the shares show up in your account. Don't let others at your company convince you to hold for 1 or 2 years to get better tax treatment or for other purposes. Sell right away and reinvest wherever you need to.


I believe I will begin with 5%. I mentioned in the original post that I save 18% of after tax income towards the downpayment of a home during the past 12 months. However, this isn't 18% every paycheck. Sometimes I will put my whole paycheck in Redneck Bank's Mega Money Market. While the next paycheck may require I use the whole paycheck to pay for expenses. I read the fine print and once I am enrolled and choose the contribution percentage, I cannot change this for 3 months.

On the other hand, I do have my emergency fund. Is this dangerous thinking? As long as I replace the funds into the emergency fund if I must borrow from it.

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DaftInvestor
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Re: ESPP

Post by DaftInvestor » Mon Mar 20, 2017 1:42 pm

Gixene wrote:
DaftInvestor wrote:"Shares are credited to your account within 5 business days following their purchase."
"You can sell your shares at any time and receive a distribution in cash"

Unless the shares drop in value by 15% after they are bought but before you get a chance to sell them - this is essentially free money to you. You should max out.
Q1: Yes - max this plan out in whatever way you can. Its practically extra-money-in-the-bank that you should take advantage of.
Q2: They won't tax you on the same money twice. You will get taxed on any gains as with any investment.
Q3: Yes - MAX IT! You will be glad you did. Just be good about SELLING right away - as soon as the shares show up in your account. Don't let others at your company convince you to hold for 1 or 2 years to get better tax treatment or for other purposes. Sell right away and reinvest wherever you need to.


I believe I will begin with 5%. I mentioned in the original post that I save 18% of after tax income towards the downpayment of a home during the past 12 months. However, this isn't 18% every paycheck. Sometimes I will put my whole paycheck in Redneck Bank's Mega Money Market. While the next paycheck may require I use the whole paycheck to pay for expenses. I read the fine print and once I am enrolled and choose the contribution percentage, I cannot change this for 3 months.

On the other hand, I do have my emergency fund. Is this dangerous thinking? As long as I replace the funds into the emergency fund if I must borrow from it.


Only you can decide what you are comfortable with. Personally - I would rob from the emergency fund to offset funding for this (or cut back on expenses). The 15% discount (18% guaranteed return in THREE months - this is a ~72% annualized gain on your money!) is the best deal anywhere that you will find for your money. Your only risk is if some catastrophic event happened to your shares from they day they purchase them until you put in the sell order.

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Gixene
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Location: Indiana

Re: ESPP

Post by Gixene » Mon Mar 20, 2017 1:46 pm

DaftInvestor wrote:
Gixene wrote:
DaftInvestor wrote:"Shares are credited to your account within 5 business days following their purchase."
"You can sell your shares at any time and receive a distribution in cash"

Unless the shares drop in value by 15% after they are bought but before you get a chance to sell them - this is essentially free money to you. You should max out.
Q1: Yes - max this plan out in whatever way you can. Its practically extra-money-in-the-bank that you should take advantage of.
Q2: They won't tax you on the same money twice. You will get taxed on any gains as with any investment.
Q3: Yes - MAX IT! You will be glad you did. Just be good about SELLING right away - as soon as the shares show up in your account. Don't let others at your company convince you to hold for 1 or 2 years to get better tax treatment or for other purposes. Sell right away and reinvest wherever you need to.


I believe I will begin with 5%. I mentioned in the original post that I save 18% of after tax income towards the downpayment of a home during the past 12 months. However, this isn't 18% every paycheck. Sometimes I will put my whole paycheck in Redneck Bank's Mega Money Market. While the next paycheck may require I use the whole paycheck to pay for expenses. I read the fine print and once I am enrolled and choose the contribution percentage, I cannot change this for 3 months.

On the other hand, I do have my emergency fund. Is this dangerous thinking? As long as I replace the funds into the emergency fund if I must borrow from it.


Only you can decide what you are comfortable with. Personally - I would rob from the emergency fund to offset funding for this (or cut back on expenses). The 15% discount (18% guaranteed return in THREE months - this is a ~72% annualized gain on your money!) is the best deal anywhere that you will find for your money. Your only risk is if some catastrophic event happened to your shares from they day they purchase them until you put in the sell order.


I agree. Just didn't want to be too reckless. In fact, after the first quarter it would provide a cash flow that would only affect me in the short-term.

Easy Rhino
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Re: ESPP

Post by Easy Rhino » Mon Mar 20, 2017 1:52 pm

There are cons, but they're surmountable:

*Having part of your paycheck tied up for a quarter before you can sell
*The stock risk in the five day sbefore it's credited
*The additional stock risk fromthree days before that crediting settles where you might not be able to sell.
*You'll have to pay income tax (at your regular wage level) on the discount when you sell. The employer may include that in your W-2 automatically, you should check
*you'll have to file the 4 capital transactions for capital gains or losses each year on your taxes (and with my computershare espp, I have to correct the cost basis each year)
*the sales commissions you'll pay each time you sell.

I'm not familiar with the differences brought by a non-qualified plan. You may not get the preferential tax treatment on the discount's income when you sell (but then again that preferential treatment was only if you held for two years anyway).

So I would do it.

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Gixene
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Location: Indiana

Re: ESPP

Post by Gixene » Mon Mar 20, 2017 2:03 pm

Easy Rhino wrote:There are cons, but they're surmountable:

*Having part of your paycheck tied up for a quarter before you can sell
*The stock risk in the five day sbefore it's credited
*The additional stock risk fromthree days before that crediting settles where you might not be able to sell.
*You'll have to pay income tax (at your regular wage level) on the discount when you sell. The employer may include that in your W-2 automatically, you should check
*you'll have to file the 4 capital transactions for capital gains or losses each year on your taxes (and with my computershare espp, I have to correct the cost basis each year)
*the sales commissions you'll pay each time you sell.

I'm not familiar with the differences brought by a non-qualified plan. You may not get the preferential tax treatment on the discount's income when you sell (but then again that preferential treatment was only if you held for two years anyway).

So I would do it.


*Nonqualified Plan: Due to IRS code, U.S.-based employees of the [employer] cannot participate in the qualified plan. Therefore, they will participate in a similar plan, the Nonqualified Employee Share Purchase Plan. In this plan, the discount is 20% instead of 15% because of more favorable tax treatment for employees in the Qualified Plan.

As I've said earlier, we are not a US based financial institution. So the employees outside of the US receive the Nonqualified ESPP. I'm unsure what the difference is, but from what I understand if US employees received 15% then it would actually be 10%. So in essence, our employee is making the discount even between employees inside and outside of the US. However, like I said. I don't know if this is true. Maybe more due diligence is required with this.

Regardless, 20% is a great discount from the research and Bogleheads posts I've read.

centrifuge41
Posts: 1151
Joined: Mon May 17, 2010 9:04 am

Re: ESPP

Post by centrifuge41 » Mon Mar 20, 2017 2:38 pm

Participate!!! Don't worry too much about liquidity concerns. Since you can start selling so quickly, you'd basically be churning a portion of your paycheck through, and getting your paycheck (plus an extra 5% of your paycheck: 20% of your salary with a 25% bonus (same as 20% discount) back to you within a matter of weeks. A churn-through that is like a 3.5% pay raise? Why not?

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FiveK
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Re: ESPP

Post by FiveK » Mon Mar 20, 2017 2:50 pm

Yes, do it.

See also Your 1099-B form for an ESPP sale will probably be wrong and links therein for some background on the difference between qualified and non-qualified ESPPs, and something to watch for when it comes to filing taxes.

Dottie57
Posts: 1781
Joined: Thu May 19, 2016 5:43 pm

Re: ESPP

Post by Dottie57 » Mon Mar 20, 2017 3:06 pm

I ened up having tp hold due to a 50% loss in value due to CEO malfeasance. Took a very long time to recover. 8years or so.

I no longer do ESSP.

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Gixene
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Location: Indiana

Re: ESPP

Post by Gixene » Mon Mar 20, 2017 3:40 pm

djheini wrote:
Gixene wrote:1.) Last year I contributed 18% after retirement savings towards a downpayment on a home. Should these funds be put towards ESPP to take advantage of gains?

This is up to you. It isn't completely risk free, as what you posted says there is about a week between when the shares are purchased and when they're available to sell in your account. There is always a chance that the market could plunge during that week, and you would lose some of the value of your purchased shares. Additionally you will probably not earn any interest on the money between your paycheck dates and the purchase date of the stock. It's up to you if the 15% discount is worth these risks (I would probably lean towards yes)

Another risk to look in to is if your employer has any pre-clearance or trading window restrictions - this could potentially prevent you from selling immediately, thereby increasing the risk of the share price decreasing between your purchase date and when you can sell the shares.

Gixene wrote:2.) It mentions distribution in cash. Does this mean in the form of a paycheck where it's taxed once again? What is the most tax efficient distribution of these funds? I'd prefer to allocate it to a Redneck Mega Money Market which holds a fund consisting of a downpayment of a home. Unless it is better to place these funds elsewhere.

It shouldn't, it would be just like if you sold shares in a taxable account - you'd get the money for the value of shares minus any commissions/fees for the sale. The only tax should be on any gains between when you bought and sold the shares, which if you sell ASAP should be fairly small. And if you do have a gain that you must pay taxes on, that's a good problem to have. I also believe the 15% discount will count as ordinary income when you do your year-end taxes. Once you sell and have the funds, they're just like regular cash and you can put it wherever you want.

Gixene wrote:3.) Should I contribute the maximum of 15%? If not, how much should I contribute?

That's a personal choice for you, as I mentioned in #1. In the past when I've had ESPP opportunities that were worthwhile, I've gone in up to the max.


So I called the phone number in the original post that was in X's regarding the trading window restricted employee. The phone number is a foreign number that rings and rings and no one has answered. I tried clicking on the link to [employer] corporate compliance, yet it says "Sorry, the page you were looking for does not exist or is not available." So I called Human Resources and the automated voice directed me to Computershare. A gentleman answered but you could tell he was reading from a script. He said that he could not inform me if I am a trading restricted employee and to contact my employer.

So I called the Human Resources number once again. There wasn't an automated choice to seek the question I had, so I had chosen the the last one which was "Other Human Resources information" and I reached a gentleman I spent 24 minutes on the phone with. I could immediately tell he wasn't the one who would be able to assist me because he said that he has never heard of a trading window restricted employee. I spent 20 minutes navigating him to the wording on our Human Resources website. The other 4 minutes he explained that since I am not a "professional trade for [employer] then you should not be a trading window restricted employee." I explained that anyone could have insider information, but that I wanted to be sure I was not viewed as a restricted employee to allow me to liquidate shares immediately. "Oh no, you should be fine. You aren't a professional trader." I knew we weren't making progress, so I ended the phone call.

The fact is, anyone can be a restricted employee. CEOs on down to the low man on the totem poll like me. I doubt I am a trading window restricted employee. I didn't necessarily receive the best answer.

Should I do more research on this or enroll regardless?

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DaftInvestor
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Re: ESPP

Post by DaftInvestor » Mon Mar 20, 2017 4:23 pm

Gixene wrote:
The fact is, anyone can be a restricted employee. CEOs on down to the low man on the totem poll like me. I doubt I am a trading window restricted employee. I didn't necessarily receive the best answer.

Should I do more research on this or enroll regardless?


If you are a trading window restricted employee you should have already been told regardless of the ESPP (since you can trade on the open-market) - and if you have access to the type of info that would make you restricted you shouldn't be trading during certain windows anyway to avoid insider-trading. Of course just because you aren't restricted today doesn't mean you might not be in the future - think about whether or not you have access to insider information that can have a VERY LARGE influence on the stock price. For example:
1) Access to all revenue and sales data for the quarter company wide PRIOR to public announcement (e.g. VP FInance, VP Sales, etc.).
2) Involved in Merger and Acquisition activity within the company.
3) Involved in spin-offs; major surprise product announcements prior to public disclosure.

I worked for a company whereby nearly everyone was restricted - but the window was simply the 3 days before and after quarter-end - and the company purposely avoiding having the ESPP line up with that time frame. I worked for another company whereby I got involved with an acquisition and was told not to do any trading until 3 days after the acquisition was publicly announced. These policies are put in place to protect the employees as much as the employer.

This is certainly another risk of an ESPP - if you have insider information such that you can't trade during long periods you might reconsider.

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Gixene
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Re: ESPP

Post by Gixene » Mon Mar 20, 2017 8:34 pm

centrifuge41 wrote:Participate!!! Don't worry too much about liquidity concerns. Since you can start selling so quickly, you'd basically be churning a portion of your paycheck through, and getting your paycheck (plus an extra 5% of your paycheck: 20% of your salary with a 25% bonus (same as 20% discount) back to you within a matter of weeks. A churn-through that is like a 3.5% pay raise? Why not?


Perspective of a pay-raise is certainly a different perspective to look at it. It is free money after all. Now the one thing I don't understand. The ESPP takes deducts 15% after taxes. Is this after, before or at the same time the 15% for 401k is deducted?

FiveK wrote:Yes, do it.

See also Your 1099-B form for an ESPP sale will probably be wrong and links therein for some background on the difference between qualified and non-qualified ESPPs, and something to watch for when it comes to filing taxes.


Thank you for this resource! I have saved it in my Favorites because I want to be certain that Computershare is calculating taxes correctly.

Dottie57 wrote:I ened up having tp hold due to a 50% loss in value due to CEO malfeasance. Took a very long time to recover. 8years or so.

I no longer do ESSP.


That's terrible! Were you holding the shares after vesting period?

DaftInvestor wrote:
Gixene wrote:
The fact is, anyone can be a restricted employee. CEOs on down to the low man on the totem poll like me. I doubt I am a trading window restricted employee. I didn't necessarily receive the best answer.

Should I do more research on this or enroll regardless?


If you are a trading window restricted employee you should have already been told regardless of the ESPP (since you can trade on the open-market) - and if you have access to the type of info that would make you restricted you shouldn't be trading during certain windows anyway to avoid insider-trading. Of course just because you aren't restricted today doesn't mean you might not be in the future - think about whether or not you have access to insider information that can have a VERY LARGE influence on the stock price. For example:
1) Access to all revenue and sales data for the quarter company wide PRIOR to public announcement (e.g. VP FInance, VP Sales, etc.).
2) Involved in Merger and Acquisition activity within the company.
3) Involved in spin-offs; major surprise product announcements prior to public disclosure.

I worked for a company whereby nearly everyone was restricted - but the window was simply the 3 days before and after quarter-end - and the company purposely avoiding having the ESPP line up with that time frame. I worked for another company whereby I got involved with an acquisition and was told not to do any trading until 3 days after the acquisition was publicly announced. These policies are put in place to protect the employees as much as the employer.

This is certainly another risk of an ESPP - if you have insider information such that you can't trade during long periods you might reconsider.


Correct, I have not been told that I am a trading window restricted employee. However, we are required to take ethics and compliance training annually that's about 5 hours of testing. One of the topics is insider trading, but has never mentioned trading window restricted employees.

1.) I have access to revenue and sales data for only my branch, not company wide prior to public announcement. Though I'd never trade on this alone.

2.) It's a rumor, but that's all it is. Lots of names mentioned. Plus, financial institutions are notorious for mergers and acquisitions. Though I'm not actively involved with it.

3.) Personal bankers are always told about financial products that are going to be released. After all, we do have to have knowledge of these products before offering to the public.

I doubt I'm viewed as a trading window restricted employee. I also doubt I will be able to find out before quarterly enrollment ends this week (I'm out of the office). So I'm unsure if I should pony up the 15% and see or lower it down to 5% until I'm certain. Guess I will have to sleep on it.

lazydavid
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Joined: Wed Apr 06, 2016 1:37 pm

Re: ESPP

Post by lazydavid » Tue Mar 21, 2017 8:32 am

Dottie57 wrote:I ened up having tp hold due to a 50% loss in value due to CEO malfeasance. Took a very long time to recover. 8years or so.

I no longer do ESSP.


This happened within the week or so following the end of an ESPP period? Or had you been holding quite a bit for quite a while?

Everyone's is different, but our program is quarterly. So if our stock happened to have a similarly massive decline at the worst possible time--let's say April 4th--I'd be out about $1700. Obviously it'd be double that if we were on a semiannual program. Sucks, but not the end of the world--basically wipes out five years' worth of discounts (with OP's generous plan it'd be five quarters' worth of discounts). A few days earlier or later, and it wouldn't matter at all.

Now if I had been holding on to all of my ESPP since the beginning, the impact would be much greater. But that's why we talk about single-company risk, and try to limit that risk by selling as soon as possible. Therefore I'm only in my company stock for about a week at a time (how long it takes to transfer out and liquidate), four times a year.

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