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The max contribution is $25k, but sometimes employers will put a cap on salary that can go toward your ESPP. If you havent ever contributed to your companys ESPP before, select a percentage of your pay that feels comfortable (maybe 1-5% of your salary).
If you have no debt and youre contributing up to the company match in your 401(k) PLUS saving money, you should definitely max out the amount you can contribute to your ESPP. This will result in you substantially growing your net worth.
There is a good chance that the 401(k) plan beats the ESPP if you expect your marginal taxes to go down, as is often the case because you move into a lower bracket and potentially even move from the high-income tax state where you worked to a zero or at least low-tax state in retirement.
In most cases, vesting stops when you terminate. For stock options, under most plan rules, you will have no more than 3 months to exercise any vested stock options when you terminate.
Are ESPPs good investments? These plans can be great investments if used correctly. Purchasing stock at a discount is certainly a valuable tool for accumulating wealth, but comes with investment risks you should consider. An ESPP plan with a 15% discount effectively yields an immediate 17.6% return on investment.
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What happens to my ESPP when I leave a company? If you leave your job after the purchase date, your shares can be sold or transferred to your personal broker. Just keep in mind that during the offering period, you havent actually purchased stocks yet.
Investing in an ESPP can be a good idea, but it should complement your financial goals. These goals can be either long-term or short-term objectives for your overall financial health. Depending on when you buy and sell your shares, your ESPP could fit well into both.
Cons of ESPP for employees There could be different tax implications depending on where you and your employer are located. The discount allowed by the company may be taxed as benefit-in-kind. Returns are not guaranteed and the share price may fall as well as increase. There could also be a currency risk involved.
When you leave, your stock options will often expire within 90 days of leaving the company. If you dont exercise your options, you could lose them. Heres what you need to know about stock options and what you should do with them when leaving a job.
In a nutshell: Owning company shares is a HUGE benefit, especially when you manage those shares to their greatest advantage. As a general recommendation, we suggest selling 80% to 90% of your ESPP shares immediately after purchase and using the proceeds to improve your financial situation in other ways.

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