Author Topic: Maxed out ESPP  (Read 2108 times)

Mr Dumpster Stache

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Maxed out ESPP
« on: May 09, 2015, 05:57:32 PM »
Upped my ESPP deduction to almost twice what it was before. I'm now at the max allowed! It's a good dividend-paying stock and I get it at a 15% discount.

Maybe this fall I'll get brave and up my 401k deduction...

humblefi

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Re: Maxed out ESPP
« Reply #1 on: May 10, 2015, 07:41:35 PM »
Any savings vehicle is good and ESPP can be especially good if you can get a solid stock at a discount. In my circle, including me, ESPP stocks is an especially common way to fund the downpayment for a home purchase. So, congrats!

I will mention two caveats worth thinking about.
+ Funding ESPP before 401K => you will not reduce your taxable income. So, would your tax bracket change (drop down) if you contributed more to 401k first than ESPP?
   If so, then you may want to compare the gains from a lower tax bracket vs the gains from the ESPP.
+ ESPP stocks have an interesting way of creeping up and becoming the single biggest stock purchase that one holds in the portfolio.
   For example, for me, my ESPP stock became almost 10% of my portfolio. So, if that company has a bad quarter, then 10% of your portfolio has a bad quarter.
   I do not have a solution for it, but I do periodically sell a bit of the stock and invest in a dividend paying mutual fund (VDIGX) to spread the risk around a bit.
   I.e. risk spread across one company vs risk spread across 50 companies. I do the same with the dividends since my ESPP the stock is priced quite high now.

Hope that helps.

minority_finance_mo

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Re: Maxed out ESPP
« Reply #2 on: May 12, 2015, 03:56:13 PM »
Congrats! I asked around and most of my coworkers do not participate in the ESPP. Then again, my employer matches 25% of our 401K contributions up to the max also, and I doubt many people are taking advantage of that either...

For the comparison of 401K vs. ESPP, note that 401K matches often have a vesting period that can tie you to an employer. Stocks purchased through an ESPP are yours immediately following the purchase date.

 

Wow, a phone plan for fifteen bucks!