Employee Stock Purchase Plan (ESPP) Is A Fantastic Deal
If you work for a publicly traded company which offers an Employee Stock Purchase Plan (ESPP), you've got yourself a fantastic deal. An ESPP typically works this way:
- You contribute to the ESPP from 1% to 10% of your salary. The contribution is taken out from your paycheck. This is calculated on pre-tax salary but taken after tax (unlike 401k, no tax deduction on ESPP contributions).
- At the end of a "purchase period," usually every 6 months, the employer will purchase company stock for you using your contributions during the purchase period. You get a 15% discount on the purchase price. The employer takes the price of the company stock at the beginning of the purchase period and the price at the end of the purchase period, whichever is lower, and THEN gives you a 15% discount from that price.
- You can sell the purchased stock right away or hold on to them longer for preferential tax treatment.
Your plan may work a little differently. Check with your employer for details.
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