'Tis the season to start thinking about your ESPP
Employee stock purchases are a magnificent way to build savings, wealth, and a long-term investment nest-egg. There are many important aspects to the ESPP program, and we’ll hit on a few of the main ones.
First, choosing to opt into the program is a must, but a no-brainer it is not.
Because purchases require cash, by opting into the program, you are opting to allocate a portion of your paycheck to buy Nike stock. With the election to purchase, comes all the benefits and risks of owning stock—even if it is a stock you are quite comfortable with and are buying at a 15% discount to fair market value (see program rules for purchase price details.) So, making sure your elected deferral amount doesn't put you in a pinch from a cash flow standpoint, is an integral part of the initial decision process.
Once you've decided to defer a portion of your paycheck, understanding your window to enroll is critical. Importantly, the next election period for ESPP begins March 1 and ends March 25. The election for ESPP is pretty straight forward and are managed by E*TRADE Financial along with other Nike stock programs including options and RSU’s.
For this next election cycle, deductions from your paycheck begin as early as 3/30 (please confirm with Nike HR). Dollars accumulate over the next six months—then a purchase is made on or around 9/30. The max gross dollar contribution is $25k per year. However shares are being purchased at a discount, actual dollars contributed are a little north of $21k.
For optimal tax treatment, we recommend holding shares for at least 18 months after the purchase date.
Although many individuals purchase and sell shortly after acquisition, this is sub-optimal from a tax standpoint. A better consideration to optimize cash-flow would be to accumulate a savings account to dip into when necessary. We would suggest using funds from ESPP after the 18-month holding period from the purchase date or, better yet, to continue to accumulate shares over time. If you are fortunate to have RSU’s, and accessing funds is limited to a choice between ESPP and RSU’s, then recently vested RSU’s are typically the next best option to minimize taxes.
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There is a lot to consider with Employee Stock Purchase Programs and the benefit at Nike is no exception. When coupled with the matching that occurs with the 401(k) as well as options, RSU's, deferred comp, and the host of other Nike benefits it is indeed a world class benefit program which Nike HR has given a considerable amount of time creating and managing.