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Employee Stock Purchase Plans

Employee Stock Purchase Plans (ESPPs) allow an employee to use after-tax payroll deductions to purchase their company’s stock. It’s one of the easier ways to benefit from their own employer’s growth and profitability over time. There are two types of ESPPs: Qualified and Nonqualified.

A Qualified plan is one that the shareholders of the company must vote on to approve. All the people involved have the same rights in the plan. The stock price can be discounted, but there’s a limit set down by the IRS as to how much as well as a cap on the offering period. A nonqualified plan has none of these limits and they don’t need shareholder approval, but there’s no real tax advantage to a nonqualified plan.

How it Works

Typically, employees need to enroll in the plan offered by their company, usually on an offering date. This would be an amount, usually capped at around 10%, taken out of their paycheck and placed in a separate account. Deferrals are put in place until such time when the employee sells their shares and collects their profit.

Want to Learn More?

ESPPs come equipped with a variety of variables. If you’re given the opportunity from your employer to enter an ESPP, let’s talk and figure out what strategy is best for you. Contact me to find out more.

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