ESPP: max out early in the year?
ESPP: max out early in the year?
I have an ESPP which has two purchase periods a year. I want to contribute the IRS annual maximum of $25k worth. Given that, should I max contributions early in the year so I use up that maximum in the first purchase of the year or is there an advantage to spreading it out through the year?
Re: ESPP: max out early in the year?
Front loading always helps. Gets the free money into your hands earlier which can then be re invested in other stuff.
No real down side to front loading as long as you can afford it / handle the reduced cash flow for the first half of the year.
Make sure you are front loading your options in the correct order. For me, my 401k gives 50% match for all contributions, so my ROI for front loading my 401k is greater than my ROI for front loading my ESPP (10% discount for me)
Also looks at other options such as maxing your back door Roth IRA on Jan 1 vs later in the year.
No real down side to front loading as long as you can afford it / handle the reduced cash flow for the first half of the year.
Make sure you are front loading your options in the correct order. For me, my 401k gives 50% match for all contributions, so my ROI for front loading my 401k is greater than my ROI for front loading my ESPP (10% discount for me)
Also looks at other options such as maxing your back door Roth IRA on Jan 1 vs later in the year.
Re: ESPP: max out early in the year?
At my company it's the luck of the draw. You want to get 25k in in there, but it depends on during which period the stock has a better positive movement. That's the period you wanted to max out in. Impossible to know.
Re: ESPP: max out early in the year?
That only applies to plans with a lookback provision, though. My understanding is those are becoming increasingly uncommon.
Re: ESPP: max out early in the year?
For the case where you have a look back feature, and if you always sell at a fixed the - say always in December, then is my thinking correct that the period you buy doesn't matter?
Re: ESPP: max out early in the year?
I don't think that's true. Purchasing through ESPP in a certain period gives you the optionality on the period-end price, whereas holding it yourself doesn't. If the stock declines below your purchase price you won't be protected by holding stock yourself as you would if you participated directly.