Search
  • xennial_lindsay

The Alphabet Soup of Employer Stock

If you are a highly valued employee, you may have been given an opportunity to “buy into a piece" of the company where you work. Employers use RSUs, ESOPs, and ESPPs (defined later) to encourage loyalty and keep good employees on the books. These terms refer to forms of stock, or ownership in a company, but work differently than simply purchasing company shares on a stock exchange. Word of caution, however, you can get into trouble with these plans if you wind up, perhaps unknowingly, “putting all of your eggs into one basket.”

RSUs (Restricted Stock Units)

RSUs are essentially stocks “with no strings attached.” These are popular at all levels of a company, not just executives and are used to attract and retain talent. While there are no actual shares or dividends, they always have a value based on the underlying stock price. Once they vest, you are immediately taxed on the current value and will receive whatever amount is left. Here are 2 examples of how RSUs may be offered to you:

  1. 300 RSUs with a 5 year vesting (you receive 300 RSUs once you complete 5 years of employment)

  2. 25% RSU vesting (you receive 25% in the first year, 25% in the second year, and so on until you are 100% vested in year 4 of employment)


ESOP (Employee Stock Ownership Plan)

Many people mistake these plans as stock options. Stock options give you the option to purchase stock at a later date at a predetermined price. In an ESOP, you are not able to purchase anything yourself and they are 100% funded by the company. They can be given to you in the form of cash, stock, or even a loan. They are mostly used by private companies to facilitate succession planning. You are not taxed until the stock (in cash) is received, typically when you leave or retire. These plans have similar rules as your 401k or 403b, so be sure you understand the rules before cashing out!


ESPP (Employee Share Purchase Plan)

These plans are fairly common and allow you to purchase company stock (after tax) at a discounted price (1-15% below market). Usually, they are purchased through payroll and you are limited to $25,000 in purchases each calendar year. Many times employers will match contributions up to a certain percentage = FREE stock! However, the taxation can be complex depending on whether it is tax-qualified (most common, but has the most restrictions) or non-qualified (no tax advantages, but less restrictions).

These plans are a great way to jump starts saving plans for employees who may otherwise not save for retirement. However, if you are lucky enough to participate in one of these plans, diversification is key! The rule of thumb is to keep no more than 10% invested in your employer’s stock (remember Enron?). There are also some significant tax rules, so be sure to speak with a tax specialist or financial planner before making a move that could cost you.

8 views0 comments

Recent Posts

See All

My Reflections on 2020 and the New Year Ahead

A new year is upon us and I hope you and your loved ones are safe and in good health. It has been quite a year for all of us. However, I believe it is important to take some time to reflect and also l

Tax Planning Tips and Tricks to Close Out 2020

As we bid adieu to 2020 (sigh of relief), we must begin to plan for the inevitable: Taxes. This year has been full of changes and no doubt, many are yet to come with the inauguration of a new Presiden

Subscribe Here!

For a limited time, receive my checklist "Accounts to Consider in 2021 If You Want to Save More"

760-205-3432

48 Ave. Luis Muñoz Rivera #2207

San Juan, PR 00918

©2019 by Xennial Planning LLC is a Registered Investment Advisor in California and Puerto Rico.

Disclosures