Your employer may also require you to keep the shares for a set period of time. “Some companies have an additional holding period requirement,” Brumberg said. “They don’t want you to flip the shares.”
The gold standard for a plan is going to be a 15% discount with a lookback feature.
Bruce Brumberg
Editor-in-chief and co-founder of myStockOptions.com
Of course, there are other key details to confirm in the plan document.
You’ll want to know whether the ESPP is tax-qualified, which may offer savings, as well as how to enroll, the length of the offering period, purchase dates, how to make changes and what happens if you pull out of the plan, he said.
Given these risks, experts may suggest an ESPP to compliment your 401(k), rather than as the primary way to save and invest. And you’ll still want to weigh your risk tolerance and goals before enrolling.
An ESPP may be worth considering if you’re already meeting your other financial goals, such as maxing out your 401(k), investing in a brokerage account, paying off debt or other savings goals, McKenna said.
It may work once you’ve “checked all the other boxes,” she said, but it may be better to focus on other planning opportunities first.