Many employers offer an employee stock purchase plan, or ESPP, as a benefit to employees to purchase company stock. In many cases, employers also give a discount on the price of the shares or provide matching contributions.
Each ESPP can vary and comes with its own specific set of rules, but typically includes a discount on company stock anywhere between 5% to 15%. Participating in this kind of plan can be an important part of your overall financial picture and earning potential.
While ESPPs are only available to employees of publicly traded companies, not all public companies give you the opportunity to participate in an ESPP.
Make More Money from your ESPP with Benny’s New Program
Benny 2.0 automatically manages your Employee Stock Purchase Plan (ESPP) to make you more money without disrupting your take-home pay.
Not sure if your employer offers an ESPP? Chat with us and we’ll check for you.
5 Questions to Consider Before Selling Your ESPP Shares
Usually, you have the right to immediately sell your ESPP shares for full market value.
As with any stock market transactions, there are risks involved in selling ESPP shares because of market fluctuations. One strategy is to sell your discounted shares right away to lock in gains from the discount, to eliminate market risk, and free up cash for other investments. However, if you hold onto a stock long enough there will be good times and bad times; but over time stocks tend to go up in value overall (the S&P 500 has increased by almost 10% annually since 1926).
Here’s what you should take into consideration while deciding to sell or hold your ESPP.
1. When Can I Sell My ESPP Shares?
Most plans allow you to sell ESPP shares anytime once you own them or as soon as they vest.
2. Can I Sell My ESPP Shares Immediately?
Most of the time, yes. The exception being, a minority of companies require you to hold on to your shares for 6 or 12 months (sometimes longer). If that is the case, you will have to hold on to your shares. If you are able to sell immediately and you do, you will be taxed at ordinary income rates (also called short-term capital gains).
3. When Should I Sell My ESPP Shares?
Generally speaking, you can sell your shares as soon as possible or hold your shares for a specific time period.
The best time to sell depends on your personal situation. Depending on when and how you sell your shares, there may be different things to consider regarding income tax, investment risk, and your company’s plan rules, which can influence which option is best for you.
The two main strategies are:
- Sell right away to lock in the gains from the discount and then diversify. This allows you to limit exposure to the market, and lock-in an amazing rate of return. Additionally, it lets you put that money into places other than the company that employs you.
- Hold on to the shares for 1.5 years or until you receive preferential tax treatment (long-term capital gains). This may allow you to save on taxes but also comes with the risk that the stock will decrease in value, removing any gain you saw from the discount. But, if the stock price goes up, that’s more money in your brokerage account!
4. How Can I Calculate My Potential ESPP Gain?
We’ve built an ESPP calculator to help you calculate your potential pre-tax gain from contributing to your ESPP.
To use our calculator, you’ll need
- The discount rate offered by your employer
- The rate you plan to contribute
If you don’t know the discount offered by your employer, chat with us and we’ll get the rate for you.
Use our calculator to figure out how Benny can help boost your earning potential!
5. What Are the Advantages of Selling ESPP Shares?
Selling ESPP shares can be a great way to increase your overall income.
The biggest advantage of ESPPs is the purchase discount, often up to 15%. If you’re able to, you should max out your ESPP to take advantage of the full discount.
Benny makes participating in your ESPP easy and accessible, no matter what your current financial situation is. We give you cash to max out your ESPP benefit so you can take full advantage of your benefits earning potential.
Make More Money from your ESPP with Benny’s New Program
Benny 2.0 automatically manages your Employee Stock Purchase Plan (ESPP) to make you more money without disrupting your take-home pay.