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ESPP Calculator

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Re: ESPP Calculator

#21

Post by BeetleB »

colonCapitalDee wrote: post #8

I would strongly advise everyone to max out their ESPP contributions (you can contribute a maximum of 15% of your salary, up to the IRS mandated $25,000 limit). Why? Because it's a amazing investment that, if you sell stock immediately on reception, is risk free. I'm going to assume you know how ESPPs work, google them if you don't. Let's do the math: consider a typical ESPP (yours may vary) with a 3 month purchasing…

> You made $882.35 in "profit". Not bad at all, but not much in the grand scheme of things either. But! That's a return rate of 882.35 / 5000 = 18% in just 3 months. If you could turn around and reinvest that money in the ESPP 3 more times (4 investment periods, each 3 months long, for a total investment period of a year), you would get a yearly return of (1 + 18%)^4 = 94%. 94%! Risk free!

First rule of finances: When comparing options, never compare rates. Compare absolute amounts (i.e. Dollars).

Yes, it's a great rate, but there are other investment schemes that can make you a lot more money at a lower rate.

(Of course, I participate in ESPP and am not trying to dissuade anyone).

Re: ESPP Calculator

#22

Post by TSUTiger »

op00to wrote: post #16
darkwizard42 wrote: post #15

Earlier quoted context omitted.

As noted in a few comments below already there are risks still. Immediate execution isn't always possible due to the processing time of shares to your brokerage account and then execution of the trade, but also if your company grants the ESPP shares and it coincides with a black-out period. This adds to the risk you might be taking on. Still usually an amazing return for the time/effort required, but caution all arou…

I've never had an ESPP purchase coincide with a black-out period. If it does, that's pretty shitty of your employer.

Be a financial insider, be subjected to black-out periods. It's typical.

Re: ESPP Calculator

#23

Post by unethical_ban »

I don't know if it's universal, but ESPP tends to be post tax, correct? Meaning when the purchase is made, then I decide to sell, I only have to pay tax on the capital gains, correct? I'll find out in about two weeks.

Related, my company's rsus seem to force the option "sell-to-cover" for tax purposes upon them vesting. Bleh.

Re: ESPP Calculator

#24

Post by hammock »

darkwizard42 wrote: post #14
jakub_g wrote: post #11

Earlier quoted context omitted.

Mandatory gotcha counterpoint: it's risk free assuming immediate execution, which is not the reality. Between the time ESPP is finished at price X and the time your shares actually land on your account in Etrade / other broker so you can sell, there are several days of processing time, during which the stock can easily go down 10%+ in the "current economic climate". Then, the upside might be taxable (depending on you…

Not just this, but also blackout windows. I've seen ESPP shares be granted during hold periods and then you have to incur even MORE risk! Source: experience with Lyft ESPP

Seems like you ought to be able to file for a trade well in advance of the blackout window, i.e. you were going to sell x shares no matter what. Probably not the case, just saying it could/should be

Re: ESPP Calculator

#25

Post by UncleOxidant »

colonCapitalDee wrote: post #8

I would strongly advise everyone to max out their ESPP contributions (you can contribute a maximum of 15% of your salary, up to the IRS mandated $25,000 limit). Why? Because it's a amazing investment that, if you sell stock immediately on reception, is risk free. I'm going to assume you know how ESPPs work, google them if you don't. Let's do the math: consider a typical ESPP (yours may vary) with a 3 month purchasing…

> I would strongly advise everyone to max out their ESPP contributions (you can contribute a maximum of 15% of your salary, up to the IRS mandated $25,000 limit).

IIRC we used to be able to contribute more than 15% of salary. I recall nearly doubling my base salary in the late 90s by putting something like 25% in. That was a particularly sweet ESPP in that they set the price to be the lowest in the last 2 years. Now I think it's always the lowest in the quarter or half that you're participating in so not nearly as lucrative as it used to be.

Re: ESPP Calculator

#26

Post by ctchocula »

unethical_ban wrote: post #23

I don't know if it's universal, but ESPP tends to be post tax, correct? Meaning when the purchase is made, then I decide to sell, I only have to pay tax on the capital gains, correct? I'll find out in about two weeks. Related, my company's rsus seem to force the option "sell-to-cover" for tax purposes upon them vesting. Bleh.

No, if you sell within 24 months of start of offering period it counts as Disqualifying Disposition and the discount (FMV on purchase date minus purchase price) is taxed as ordinary income and anything on top as cap gains. If you sell more than 24 months from start of offering period, you have Qualifying Disposition and get to compute discount as min(FMV at start of offering period minus price you would have gotten had you purchased on start of offering period, sell price minus purchase price) and use that for ordinary income with the rest of gains as cap gains.

Since stocks generally go up, waiting (2 years - offering period) for QD to use discount % x FMV at start of offering period can be more beneficial than discount % x FMV on purchase date, because you may end up paying less ordinary income and more cap gains. However, you do need to incur more risk to hold an individual stock for 2 years. Conversely, if the stock goes down then DQ may actually lead to you paying less in ordinary income, so you should pay attention to how the numbers look, how confident you are in your company's equity and what your IPS says.

Re: ESPP Calculator

#28

Post by beembeem »

UncleOxidant wrote: post #25
colonCapitalDee wrote: post #8

I would strongly advise everyone to max out their ESPP contributions (you can contribute a maximum of 15% of your salary, up to the IRS mandated $25,000 limit). Why? Because it's a amazing investment that, if you sell stock immediately on reception, is risk free. I'm going to assume you know how ESPPs work, google them if you don't. Let's do the math: consider a typical ESPP (yours may vary) with a 3 month purchasing…

> I would strongly advise everyone to max out their ESPP contributions (you can contribute a maximum of 15% of your salary, up to the IRS mandated $25,000 limit). IIRC we used to be able to contribute more than 15% of salary. I recall nearly doubling my base salary in the late 90s by putting something like 25% in. That was a particularly sweet ESPP in that they set the price to be the lowest in the last 2 years. Now…

I believe the current IRS restriction on the plans themselves is 15% deferral of paychecks, unfortunately. Sounds like a sweet deal you had!

Re: ESPP Calculator

#29

Post by codingmatty »

sfc32 wrote: post #18

What's happening to the data being collected by this form? The is nothing in either "About" or the disclaimer.

https://espp.fyi/privacy-policy

TLDR: Google Analytics is installed to track visits, but all of the form data is kept in the client, because the calculations are all done on the front-end.

Re: ESPP Calculator

#30

Post by codingmatty »

colonCapitalDee wrote: post #8

I would strongly advise everyone to max out their ESPP contributions (you can contribute a maximum of 15% of your salary, up to the IRS mandated $25,000 limit). Why? Because it's a amazing investment that, if you sell stock immediately on reception, is risk free. I'm going to assume you know how ESPPs work, google them if you don't. Let's do the math: consider a typical ESPP (yours may vary) with a 3 month purchasing…

The problem with this lately has been sharp declines causing people to hit the IRS limit, which is based on the FMV on the initial offering date, and thus end up not being able to purchase as much as they expected. So the effective return on the money they set aside is way lower, and they could have paused contributions to put that money to work elsewhere.

Example: Stock @ $100 on the offering date and you are able to contribute $10,000 for 6 months. Stock dips to $25 on the purchase date. With the IRS Limit of $25k, you are only able to purchase 250 shares max ($25k/$100). Thus with a 15% discount on $25, you'd only be able to buy $5312 worth (250 * 21.25) and get a refund of $4688. In total of cash and stock, you'd have $10,938, which is still a gain, but only half the gain you expected.

Obviously, this is somewhat of an extreme example, but not wholly unprecedented in the current markets. And as stock prices remain low, the IRS limit isn't as far away as you'd expect for some stocks.

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