- June 6, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Analysis of ESPP Terms
My company’s ESPP terms deviate significantly from the standard ones found online for this type of plan. The major difference lies in the excessively lengthy lock-in period of 5 years. Under these terms, employees immediately purchase the stock at a discounted rate of 20% off a predetermined reference price and must retain it for the full 5-year duration. Additionally, the contribution limit far exceeds the typical $25k threshold. The extended lock-in period poses a major concern for me as it introduces uncertainty regarding both market conditions and the company’s performance over the next 5 years.
## Company Stock Performance
Considering the historical stock performance of my company over the past 5 years, characterized by significant fluctuations, we currently find ourselves at a peak. This variability raises doubts about the potential ROI on investing in the company’s stock for such an extended period.
## Seeking Clarification and Alternatives
Given the aforementioned factors, I am contemplating whether there exists a clear advantage in opting for the ESPP over alternative investment opportunities in the stock market. The inherent risks associated with the prolonged lock-in period and the uncertain trajectory of the company’s stock performance warrant a thorough evaluation of the available options.
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The $25k limit is an IRS limit. Even if the company allows you to contribute more, it will simply be returned to you on the purchase date.
I’d be careful with an ESPP plan like this as you’d have (5 years + 1 current year) x $25k = $150k locked up before you can sell.
Individual stock investing is already a risky endeavor, doubly so when that stock is also your employer. General recommendation is to keep your total individual stock investments to 5% of your portfolio or less, so an employer stock would lean more towards the “or less” side of that equation.
With a 5 year lock in, I personally wouldn’t find a whole lot of value in this ESPP.
Do we work at the same company? I just got my ESPP email today, too, and I know we usually have a 5-year holding period haha.
Check the terms for your plan, I know for my plan we can withdraw early for certain qualifying events (marriage, divorce, buying a house, leaving the company, etc).
5 year lock is usually a deal breaker, especially if the stock is volatile.
5 year lock up is a huge difference
In fact, you will not make a loss, but you can have your own diversified investment, which will give you more choices. I am also a crypto investor, and I enjoy my investment. At the same time, I also have many investment projects, bonds, stocks, foundations, gold and silver, which are all very good investments. And I also have a small amount of 401k funds, but I have withdrawn all of them.
Is it just a 5 year lock in period to have it count for long-term capital gains? And otherwise it becomes short-term?
Or restriction from selling completely?
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