An Employee Stock Purchase Plan (ESPP) lets employees buy company stock through payroll deductions at a discount, typically 5-15% below market price. Qualified ESPPs (Section 423) defer income recognition until sale. The discount provides an immediate 'risk-free' return — a 15% discount yields a 17.6% gain ($85 to buy a $100 share). Strategy: contribute the max allowed (15% of salary, capped at $25,000/year), sell immediately upon receiving shares to lock in the discount as a guaranteed gain, then diversify proceeds. Holding for the qualifying period (1 year from purchase, 2 from offering) gets favorable tax treatment but adds concentration risk.
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ESPP
August 22, 2026 · Aditya Gupta
Investing
Related terms
401(k)
A 401(k) is an employer-sponsored retirement plan where employees contribute pre-tax salary that grows tax-deferred until withdrawal. The…
Active Management
Active management is the attempt to outperform a benchmark through stock selection, sector rotation, market timing, or any…
Alpha
Alpha is excess return relative to a benchmark, adjusted for risk (beta). Positive alpha means an investment outperformed…
Asset Allocation
Asset allocation is the percentage split of your portfolio across asset classes — typically stocks, bonds, and cash,…
Backdoor Roth
The Backdoor Roth is a strategy for high earners (above the Roth IRA income limit) to contribute to…
Beta
Beta measures a stock's volatility relative to the overall market (S&P 500 = beta of 1). Stocks with…
