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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: RabStache on February 18, 2016, 08:15:34 AM

Title: 10% Contribution: 401k or ESPP
Post by: RabStache on February 18, 2016, 08:15:34 AM
I'm having a discussion with someone on the best way to contribute 10% of their income.  He is single, making 65k and is contributing 6% to the 401k to get the match.  At this point, we are discussing whether 10% additional to the 401k or 10% to the ESPP is the better option.  Our ESPP provides a 15% discount the day of the sale and has no hold period.

I actually didn't realize that there wasn't a hold period until we got into this discussion.  I think this is new.  I think this changes things but am not sure.

Let me know if you need more information.  What are your thoughts?

*Feel free to remove one of these, not sure how the double post happened.
Title: Re: 10% Contribution: 401k or ESPP
Post by: seattlecyclone on February 18, 2016, 08:20:00 AM
Keep in mind that since you don't have a lockup period with the ESPP, that money isn't set aside to nearly the same extent as it would be if you put it in the 401(k). Therefore if you really can't do both right now, start with the ESPP. After the first six-month period is up, sell your ESPP shares, increase your 401(k) contributions by 10%, and cover any difference between your paychecks and living expenses with the money from the ESPP shares you just sold. Continue contributing to both the 401(k) and ESPP indefinitely.

Skipping 10% contributions to the ESPP is like leaving 1.5% of your salary on the table. Don't do that, especially once you're already getting the maximum 401(k) match!
Title: Re: 10% Contribution: 401k or ESPP
Post by: Tetsuya Hondo on February 18, 2016, 10:16:44 AM
I like seattlecyclone's plan if you/they can do it.

Long term, I wouldn't put any more into the ESPP than I was willing to lose. I've seen quite a few company stocks blow up, including one of mine that went to $0. Ugh.