How I GIVE MYSELF A RAISE with ESPP (Employee Stock Purchase Plan Explained)

[@FinancewithArjun]

Does your employer offer an ESPP? Are you going to max it out now? Let me know! TIMESTAMPS: 00:42 - What is an ESPP 01:57 - ESPP returns when stock goes up 03:52 - ESPP returns when stock goes down 06:10 - How long to hold ESPP (Ft. taxes) 07:42 - Concerns about ESPP 08:41 - Action Plan

[@kathlenewhinnery5520]

Yes, but I'm not ready to max out. I'm going to try though! This is amazing info, thank you.

[@robertmarlo6668]

i was doing 3% for a while and this wfh enabled me to sit and think about strategies .. i put 15% for espp now then realized max is 10% :) but getting 25% RSU every year for last 4 years .. lots of free money , hope it continues for some time so i can retire comfortably

[@vandanabanny7550]

I did a mistake of holding the stocks for long time and I had a loss. good video , I am learning :)

[@FinancewithArjun]

Glad it was useful :)

[@junoshah24]

You got motivated and I enroll in ESPP plan , Thank you very much 😊God bless

[@FinancewithArjun]

Good to hear Juno!

[@ryanriddell8376]

Very helpful and informative. We are adding an ESPP and I didn't understand the fundamentals of such a program. You gave me that knowledge along with questions to ask. Thank you!

[@FinancewithArjun]

Happy to help!

[@nicolefoote2855]

Very helpful for someone new to this. Thank you!

[@FinancewithArjun]

Happy to help :)

[@ChinmayPatiHP]

Hi Arjun. I am enlightened. Keep up and hoping for more. Subscribed.

[@FinancewithArjun]

Thanks so much Chinmay. I have a lot more coming :)

[@USER83365]

I needed this video, was so confusing no matter how many people you talk too

[@FinancewithArjun]

Excellent

[@lrm52283]

Hunker down....impressive colloquialism! I often wonder how long I would need to be fluent in a language before I got to colloquialisms.

[@FinancewithArjun]

Haha I try!

[@GreatKeny]

Thanks. I am going to max my ESPP.

[@FinancewithArjun]

That's awesome!

[@YudiJ]

Also quick tip on video (minor thing) looks like you are not in focus. Do you not use autofocus?

[@FinancewithArjun]

Hmm that's weird, I did use autofocus when filming. I'll need to recheck the settings to make sure everything is working. All this is still a bit new to me 😅 Thanks for the constructive feedback, Yudi!

[@aamirjamal6833]

Thanks. You convinced me to start contributing.

[@FinancewithArjun]

🙌

[@msun4600]

That editing 🔥 Great video as usual!

[@FinancewithArjun]

Thanks so much Madhurya! Editing took an age but happy it's come out well :)

[@letsseehowitgoes119]

You have a beautiful smile Madhurya

[@arianna_ca]

Thanks, Arjun! Informative, clear, and I liked that you were expanding your vocabulary with this video. 😂Great job!

[@FinancewithArjun]

Haha thank you 🙂

[@kishoremaroju2720]

So simply explained.. Thanks @Arjun

[@vinodreddykareti515]

Impressed, thank you

[@FinancewithArjun]

You're welcome!

[@braveheartabc]

Great Video, Arjun. Thanks a lot.

[@FinancewithArjun]

You're welcome Satish, glad it was useful.

[@darshansiddhapura3642]

Great content structure 😃👍

[@HimanshuKumar-pu4xd]

Hi Arjun, thanks for sharing these insightful video. I have a question and will really appreciate any help from your end answering this. I recently switched to an employer where they match upto 3% of base salary towards stock purchase program. Example - If I contribute $150 per paycheck then they also contribute $150 per paycheck towards stock purchase program. Suppose, If I sell any of these stock then what would be tax implication? To be more specific, consider this scenario - For current paycheck I have $300 worth stock purchased @ $75. If I sell them next day for $76 then will I be taxed for short term capital gain of $4.00 or will it be on the entire contribution that came Employer?

[@FinancewithArjun]

Usually employer contributions are considered taxable income and you will have to pay additional capital gains tax if you sell for a profit

[@HimanshuKumar-pu4xd]

@@FinancewithArjun Thanks!!

[@sunnycharan5505]

Thanks Arjun. Great and very informative content. Keep doing...

[@FinancewithArjun]

Thanks Sunny, more to come :)

[@dojoso55]

How much should I save for taxes? Percentage?

[@anurag1052]

Thanks Arjun !!

[@FinancewithArjun]

You're welcome, Anurag. Glad it was helpful :)

[@YudiJ]

This is great! I will find out tomorrow with HR how I can get this activated.

[@FinancewithArjun]

Nice to hear from you again, Yudi :) Yes, don't leave any free money on the table. Glad I was able to help!

[@vijendersinghshekhawat6244]

Super beneficial video. Thanks alot

[@FinancewithArjun]

Happy to help!

[@venkyssss495]

Very Helpful buddy

[@FinancewithArjun]

Thanks Venkatesh!

[@rajeevvarshney4956]

Amazing explanation. THANKS

[@FinancewithArjun]

Glad it helped!

[@grneal26]

Question. My company does 10% discount and does not have a look back period so that 10% is discounted from the purchase date. Seeing as how the stock could fall in price before the shares settle into my account (2-4 days) is it even worth it to participate? Also, what about the time the money sits in that holding period? Couldn't that money be used to invest immediately in a ROTH Ira or brokerage account and still make the same amount of money?

[@FinancewithArjun]

If the stock if volatile enough to move 10% or greater in a few days it may not be ideal. But if it's relatively stable, that 10% discount is still great!

[@stanleyshostak2737]

I have one that I have been in for about a year, it’s new to the company. I have been thinking about what to do with my shares. This video gave me some ideas. Another idea I have been thinking about is if you sell your shares right away then put that money into an IRA it would be a way to reduce your reported income, thus negating some of the tax hit you will take.

[@FinancewithArjun]

Always a good idea to utilize tax advantaged accounts like the IRA

[@KatiiezCam]

Thank you so much!

[@FinancewithArjun]

Happy to help :)

[@Universe728]

Great info!

[@alphonsealphonse9503]

I work in the US for a company whose stock is listed in a foreign country. Really wish they had some alternatives for an ESPP. 401k and HSA are pretty awesome though.

[@FinancewithArjun]

Couldn't agree more!

[@pawanpinjarkar6510]

I think if you can better provide an example where ESPP is 5% and talk about dividends. Does it make a sense to invest then? Because all the commissions would easily consume the 5% discount and then I think it won’t be a beneficial deal

[@FinancewithArjun]

Hey Pawan, here are some factors to consider: 1) The 5% rate is guaranteed when you participate in ESPP Vs. variable returns (you could lose money too) when you buy and sell on your own 2) Actively monitoring the stock takes a lot of work! After setting ESPP up, it becomes quite passive So it really depends on your risk tolerance at the end of the day. Yes, commissions might eat into profits but it is a safe surefire bet with ESPP. If you want to be adventurous, you can try other methods to get >5% return.

[@ApoorvKhatreja]

This might be a stupid question but are ESPPs only valid for publicly traded companies? For private companies the "value" of 1 unit of the stock is somewhat of a fantasy number.

[@FinancewithArjun]

Hey Apoorv, this is actually a great question! ESPPs are more common for publicly traded companies but there are some private ones that offer this too (stock price based on valuation by private equity for eg.). Since these companies are not publicly traded, you likely won't be able to sell shares immediately. There will need to be some sort of liquidation event.

[@arunav876]

You should look at options trading and start making videos on that if you can

[@FinancewithArjun]

I stay away from options trading cause it's almost like gambling to me. I'd rather invest long term

[@rajatjethwani661]

Very helpful. My company has four 6-month purchase periods within each offering period. Have a doubt; how does the look back apply during the 2nd purchase period - does it look back all the way back to the offering date or the start date of the 2nd purchase period?

[@AP-no5ku]

I think you have missed out on Company Blackout period. You cannot sell immediately if blackout is in effect. Great video btw! thanks for sharing!

[@FinancewithArjun]

You're correct

[@w1nk66]

Excellent presentation

[@FinancewithArjun]

Thank you so much!

[@dudelove8662]

At some companies you cannot immediately sell the stock when you get it unless you have been working for the. For a period of time

[@FinancewithArjun]

Thanks for the info. You have to be careful in those cases

[@devdixith]

Hey Arjun my company offers 5% and it only taken into account the end date rate for purchase and usually I have seen it to be higher and there are multiple chances that the rate is lower on other days that you could have bought it directly and still make more profit rather than buy it for 5% if you actively monitor the stock. What do u think ?

[@FinancewithArjun]

Hey Dev, here are some factors to consider: 1) The 5% rate is guaranteed when you participate in ESPP Vs. variable returns (you could lose money too) when you buy and sell on your own 2) Actively monitoring the stock takes a lot of work! After setting ESPP up, it becomes quite passive So it really depends on your risk tolerance at the end of the day. If you want to play it safe, ESPP is the way to go. If you want to be adventurous, you can try other methods to get >5% return.

[@KokoManaya]

can I book a session please for better clarification and demo please

[@thethoughtsat3am401]

Hi Arjun! Great video and thanks for sharing the info. Could you please let me know if its better to hold on to the shares for a very long time e.g. 5-10 years? I am thinking if the stock goes very high, the profit will be huge. Not sure if its worth the risk?

[@FinancewithArjun]

For huge profits, you have to take risks - the stock can down a lot during that time as well (for eg. the current market). This is why I like to play it safe and sell ASAP

[@thethoughtsat3am401]

@@FinancewithArjun Thanks Arjun!

[@byerla7727]

Aside from the contribution per paycheck and automatically stocks bought by your company your working. Can i sell my existing stocks and buy those profit to other companies' stocks?

[@FinancewithArjun]

Yes of course!

[@dec1slh]

You pay ordinary tax on the 15% discount whether you sell immediately or wait 1 - 2 years.

[@varatharajandhamotharan1511]

fyi if you have really did research on espp, not all companies pick lowest price.

[@TheOperamore]

omg so clear thank you... would u advise Starbucks ESPP or part time barista?

[@TheOperamore]

the discount is only 5 percent and the max contribution amount is 10 percent of the pay.

[@FinancewithArjun]

Thanks so much :) If you can deal with the reduced paychecks initially, it still might be a good way to get a risk free 5% return (assuming you can sell immediately). If you have a higher risk tolerance, you can try other methods to get >5% returns (investing in the general stock market for eg.)

[@awesome_ashu]

If the plan is applicable for 3 months, what is the purchase value of the stocks? Let's say on Day 1, the price of the stock was Rs.100 and it increased to Rs.150 on last day, at what price would the stock be bought? Considering 10% discount, would be it be 90% of 100 or 150?

[@FinancewithArjun]

That depends on the terms of the plan as it can vary from company to company. Some will say that it is based on the last day price, some will say that it is based on the lowest price within the 3 month window.

[@santoshkharat468]

Super dude...this was really helpful...1 question.. is it true that as soon as we get stock , the discount amount is considered as our income and india govt charge income tax as per tax bracket applicable. Pl guide on this. Also if company asking for some lock in period after stock purchase then it is bad idea to participate, pl give ur opinion.. If company not offering lookback feature - will it a good idea to participate- pl suggest. I really appreciate video as it clear my understanding.

[@FinancewithArjun]

Hey Santosh, I am less familiar with Indian taxes. If there is a lock in period, then you have to think twice because it is not guaranteed free money

[@naveenkumarn7345]

Iam working for a us based company from India and buying stocks which are listed in Nasdaq under ESPP program. If I wish to sell them after 5 years how is the tax calculated for the profit

[@anantpalsaluja]

Great video! I have a question my employer is listed in US however my payroll deduction is from UK since I am employed in UK. Does the ordinary tax + short term capital gain a U.S. concept or does it apply to all gains on ESPP irrespective?

[@FinancewithArjun]

This video is from a US point of view. Not sure how it works in the UK

[@SuperheroKaif]

Your employer would have this documented which should be referred in terms of tax implication + you should 100% consult your financial advisor in UK to really get the exact tax implication on gains and dividends.

[@CraszyAsce]

I get stock vests from my company as part of my overall compensation. I do ESPP (15% of salary at 10% discount) now as well, so doubling up on stock. My plan is to sell some of the stock that has been vesting to make up for the stock I am buying through ESPP. This vesting stock has been held over over a year, so I would essentially be paying long term cap gains tax while still getting the benefit of buying and selling ESPP stock as soon as I can right? I'm trying to figure out the best way to do this since I do need to diversify my investment and don't want to be all in on my company, profitable is it may be for the time being. 15% contribution is also not sustainable for me without selling off lol, I got bills to pay. And would like to roll over the excess gains into other investments.

[@FinancewithArjun]

This is the exact process I follow :) I even sell some portion of vested stock immediately to lock in the money

[@44444cesc]

Hey Arjun, I max out my 401k, HSA and contribute to taxable brokerage account also. Do you think I should invest in ESPP before investing in a taxable brokerage account? Thank you.

[@FinancewithArjun]

If you have a good plan (criteria in the video), then definitely!

[@44444cesc]

@@FinancewithArjun :Thanks Arjun. One quick follow up question. Do you recommend maxing out ESPP even if you know the stock is expected to go down in the next six months(suspected recession in 2023)? Thanks a lot.

[@FinancewithArjun]

The video talks about this case - if you get a discount and are able to sell immediately, you will still make profits even if the stock goes down

[@TheOperamore]

Can you clarify "diversfying to index funds" you mentioned at 7:20 ? What does it mean?

[@FinancewithArjun]

Sure, I have a whole video on this: kzbin.info/www/bejne/qGKYd4OjgcR_aM0

[@arathimethil9867]

Hey yudi I'm a yr too late to your video... But it's very informative ... What do you mean by 'sell the stock immediately ' what should be a time frame?

[@FinancewithArjun]

I think you have confused KZbinr names haha. But to answer your question, I mean as soon as you get it on the same day

[@arathimethil9867]

@@FinancewithArjun ohh shoot sorryy !!! Yes I'm commenting after a long time on youtube 🤣 so sorry about that Arjun and thank you!!

[@krajpathak]

Hi Arjun! How much is the tax on these returns? 30% like for bonuses or just the federal+state income tax. If you are taxed say 20% on these returns, wouldnt that mean you lose money if the stock value tanks?

[@FinancewithArjun]

Hey Kaustubh, there is a section in the end where I talk about taxes. If the stock value tanks and you sell at a loss, you can claim these losses to reduce your taxable income. You can avoid all losses by selling immediately

[@tushargera8674]

I recently started contributing 15% of my paycheque in ESPP. But, do i also have pay double taxes (Income and Capital Gain)like we do in RSU?

[@FinancewithArjun]

If you sell immediately, you will not have to pay any capital gains

[@jaganmohan4161]

That's great Arjun. My company offered ESPP and i enrolled this quarter. Shares are not allocated yet. I'll sell it immediately once they are allocated. So, if i sell them immediately then tax should be less than (Short term capital gains)STCG or equalant to STCG? It would be really helpful if you do a video on perquisite tax (indian tax).

[@FinancewithArjun]

06:10 talks about the tax aspect. Note that many of my videos (this included) are for folks in the US. Indian taxes will likely be different

[@BassistBreakdown]

Great Video.

[@FinancewithArjun]

Thanks so much!

[@Smartlearningwithnidhi-uq4sv]

Hi Arjun, If we sale shares after offering period, does company again purchase the shares with that amount (contribution+profit) in next offering period along with new contribution?

[@FinancewithArjun]

Hey Nidhi, you get to keep the money from the sold shares. If you continue with the ESPP, the company will take out money from your upcoming paychecks in the next offering period.

[@Smartlearningwithnidhi-uq4sv]

@@FinancewithArjun thanks for the response but I didn't get my dought clear Let me ask once again by giving a example My company is purchasing shares on last trading day of every month If I have purchased shares in January from January contribution and sold on 1st trading day of February For feb month purchase, does company consider only February month contribution or January contribution+February contribution+ profit amount I hope questions is clear now

[@FinancewithArjun]

It would be only Feb contribution

[@hemanth9300]

Hi Arun/ Experts, if i invest month;y in ESPP, dose the invested amount is taxable in India ? like if i started investing 10K everymonth, should i pay 30% Income tax on that 10K every month, Please answer my question, i am planing to enroll for ESPP

[@FinancewithArjun]

Not sure about Indian tax system unfortunately

[@rifleman542]

The real question is - What if the stock falls more than $10?

[@FinancewithArjun]

Doesn't matter. If it drops $10, $50 or $100, you always get a discount off that lower price (this is how most ESPPs are structured anyway). As long as you sell immediately, you will always make money.

[@Fiandrea9]

I currently work for amazon and I sign up for their direct stock purchase plan and I have Noooo idea wat I`m doing but would like to learn and get guidance.

[@FinancewithArjun]

Nice. This video is a great starting point :)

[@AdwaitBhagwat]

Is it a good idea to enroll in ESPP if there is 1 year holding requirement?

[@FinancewithArjun]

I would think twice unless you're confident in the company's growth trajectory

[@KiranKumar-lp8bd]

Hi Arjun Very good explanation. I am from India My company also offering ESPP. My doubts are. 1. Evey month they are deducting some percentage from my salary . These deduction amount will i get any tax exemption or not. 2. My company giving discount on shares that's excess of my CTC that excess amount is taxable or not. Please clarify

[@FinancewithArjun]

Thanks Kiran. I am less familiar with the Indian system so I'm probably not the right person to be answering this. But if I were to base it on what I know: 1. I don't think you get any tax exemptions 2. Any extra income is most likely taxable

[@KiranKumar-lp8bd]

@@FinancewithArjun thank you arjun

[@ATMOSK1234]

If you want to know the risks of holding company stock for too long, read testimonials from Enron employees. Alot of them lost not only their jobs, but their life savings when the company collapsed.

[@joshuasmith7555]

So I maxed mine out a short time ago at $6000 a year. I was going to wait until the end of the year to sell. After watching this video I'm thinking I should sell now and each time there is a purchase, is this correct?

[@FinancewithArjun]

Depends on your risk tolerance - if you want zero risk with guaranteed returns, then selling immediately is the best option. If you're ok taking on some risk that the stock will increase over time, then you can choose to hold on for longer

[@joshuasmith7555]

@@FinancewithArjun Okay so I officially looked at the terms of my espp and my company does not offer the look back purchase however they match 15% up to $6000 a year. There are fees and of course taxes each time I sell. I am thinking that I should wait to do it every 6 months or at the end of the year so that I don't incur a bunch of fees. Any thoughts?

[@FinancewithArjun]

@@joshuasmith7555 that would depend on the specifics of your company's plan. Best would be to create scenarios and calculate how much you stand to gain from each option

[@davida8052]

I max mine out every year.

[@FinancewithArjun]

Excellent. Way to go!

[@mofarr4613]

I'm new to investing so I appreciate your informative video! Question: 1. Why sell when the stocks become vested? 2. Is investing in an ESPP a once and done process - contributing, waiting, selling - or is this something that is always available for me to be able to make money? Thanks.

[@FinancewithArjun]

1. So that you can diversify into other investments. You don't want to rely on one company for job your job as well as your investment portfolio 2. It is an ongoing process. You keep doing this over and over every window

[@MrSamuelini1995]

Planning to go with this ESPP strategy, I know that my company’s plan allows immediate selling upon the deposit of shares into your investment account. Does anyone have experience with this strategy in regard to being potentially restricted from selling immediately if you become aware of insider material non-pubic information during the period?

[@FinancewithArjun]

Hey Sam, there are usually specific periods that are insider friendly and you can sell only then.

[@LoneWoIfPack19]

Not all information that gives you an advantage is "insider" information. I work in logistics and when we see that increases/decreases in inbound/outbound are highly correlated to future stock prices. You can legally use that information for investing. We can buy and sell after one month (20%) daily, and change the amount invested from week to week. Just never invest more than you can afford to completely lose.

[@Shaibayan]

Investing in ESPP from India for a US company doesn't look like profitable at all. First of all the discount of 15% is taxed as income. Then there are demat charges. Then there are forex charges. Selling fees once the shares are sold and so on. Very hard to understand from an Indian context how this can be profitable.

[@FinancewithArjun]

Might well be. This was made from a US POV where none of those fees exist

[@candidcamille9626]

Do you think it is worth it if it is locked for 6mos?

[@FinancewithArjun]

That would depend on how your company's outlook looks. You aren't guaranteed profits with a 6 month lock in. So if you think the stock price has a chance of going down by more than the discount %, I would stay away

[@cybrainx72]

Looks like you don't seem to have good understanding of what qualifying disposition is.. if there is a significant increase during offering period... you will taxed heavily as your bargain element that you pay ordinary income tax for will be more than the discount you received. In fact easily provide the cushion for the loss by holding.

[@rishabhkumarsoni1240]

Wow ❤️

[@rishabhkumarsoni1240]

You convienced me to start espp 🎉

[@FinancewithArjun]

Excellent!

[@shilpag08]

Hi Arjun, Nice Video, Would you mind diving more in to tax (US and Indian Tax) , the case where Indian Salaries employees invest in NASDAQ for ESPP, Thanks

[@FinancewithArjun]

Unfortunately I've not as familiar with the Indian side of things

[@arunsoman2410]

Hi Arjun, what if I resign the job before the period end??

[@FinancewithArjun]

Usually, you would get the contributions back

[@arunsoman2410]

@@FinancewithArjun only the amt which I contribute or the current value of my holdings??

[@vanalbury7216]

I put in 5% with a 10% max my Job only offers 5% discount.

[@FinancewithArjun]

Yeah 5% isn't a very attractive discount and you likely won't stand to make much

[@sudeshnamandal2854]

It is not free money. The taxes on the gain is miserable.

[@FinancewithArjun]

Extra money minus taxes is still better than no extra money

[@dheerajanumulapally5522]

How about an employers policy says 5 years lock-in period? Where we cannot sell them immediately?

[@FinancewithArjun]

Hey Dheeraj, there is too much uncertainty in those policy terms as you have no idea how the company how the company will perform even 2-3 years later. If I was in your shoes, I would not enroll in such a program.

[@dheerajanumulapally5522]

@@FinancewithArjun Policy says 100% capital guarantee and at the end of lock in period, if company is in profit then I get my investment+ profits else only what I invested

[@FinancewithArjun]

Still not appealing enough in my opinion. It would probably just be better investing in an index fund.

[@MegaMan-bs3oy]

HA HA NO WAY I could max out Amazon. I make 500 a week their max is 300! I couldn't pay bills ha ha

[@FinancewithArjun]

Fair enough