Interesting Discussion on ESPP - From the participants perspective...9 Aug 2009
for the whole discussion - http://www.bogleheads.org/forum/viewtopic.php?t=41504&mrr=1249868457
galacticb
Joined: 03 Aug 2009
Posts: 6
|
Posted: Sun Aug 09, 2009 9:21 pm Post subject: New Investor - Stock Award and ESPP Strategies
|
|
|
Hello everyone,
I posted on this forum last week and received some excellent advice on
initial investing strategies for my retirement funds. With the basics
covered, I was hoping to get some additional recommendations for
approaches to dealing with stock awards and Employee Stock Purchase
Program (ESPP) participation.
NOTE: I currently plan to liquidate most of my non-retirement
investments to cover student loan debt and to provide a clean slate for
future investing. Thus, for the purposes of this discussion, I am
relatively debt-free (except for a single car loan) but have little
existing investments (except for a relatively small IRA and cash
reserve).
--------------
The following is an overview of my situation:
1) Part of my employment offer includes a substantial on-hire stock
award (five figures paid over five years with 20% vesting each year).
2) I likely will be eligible for future annual stock awards based
on job performance (unknown amount paid over five years with 20%
vesting each year).
3) I am eligible to participate in a company ESPP that allows for
purchasing up to 15% of my salary in stock at a 10% discount. There is
no holding period on the stock (i.e. it can be sold within 2-3 days of
purchase). This can result on average in a 1.5% bonus if the stock is
immediately sold.
--------------
Having done some research on the Boglehead investing strategy, I
know that there is a desire (1) to avoid holding substantial amounts of
stock in a single company and (2) to minimize taxes. In this particular
case, these two goals seem to be in conflict with each other.
Does anyone have any advice on the following:
1) Should I participate in the ESPP at my company? If so, should I
sell immediately (and eat the higher taxes) or try to hold funds for 12
months to receiver preferred treatment on the gains?
2) The tax event for my stock awards occurs when the award vests.
Thus, I am required to hold the stock for an additional 12 months
beyond the point of vesting in order to have the sale classify as a
long-term capital gain/loss. Would you recommend holding onto funds for
the additional time or performing an immediate sell?
3) Is it advisable to sell company stock in a lump sum ASAP or to
try to sell in smaller amounts to reduce risk from selling at a single
point in time?
4) If shares are sold at a loss, is there a difference between a short-term capital loss and a long-term capital loss?
Thanks in advance for any information that you may be able to provide!!!
Sincerely,
GalacticB[/list] |
|
Back to top |
|
 |
tfb
Joined: 19 Feb 2007
Posts: 2789
Location: thefinancebuff.com
|
 Posted: Sun Aug 09, 2009 9:40 pm Post subject: Re: New Investor - Stock Award and ESPP Strategies |
 |
|
galacticb wrote: |
1)
Should I participate in the ESPP at my company? If so, should I sell
immediately (and eat the higher taxes) or try to hold funds for 12
months to receiver preferred treatment on the gains? |
Yes, sell immediately. Holding isn't worth the risk. A 3% drop in price wipes out all tax benefit. See ESPP Is A Fantastic Deal.
galacticb wrote: |
2)
The tax event for my stock awards occurs when the award vests. Thus, I
am required to hold the stock for an additional 12 months beyond the
point of vesting in order to have the sale classify as a long-term
capital gain/loss. Would you recommend holding onto funds for the
additional time or performing an immediate sell? |
Sell immediately. The award is taxed as income at vesting no matter
what. Holding is equivalent to using the money to buy shares. See RSU Tax Withholding Choices.
galacticb wrote: |
3)
Is it advisable to sell company stock in a lump sum ASAP or to try to
sell in smaller amounts to reduce risk from selling at a single point
in time? |
In a lump sum.
|
|
