When Can I Sell My ESPP Shares?
Participating in your company Employee Stock Purchase Plan (ESPP) is a great way to boost your net worth. If your company offers a Qualified ESPP, which is likely the case, your company has received permission from shareholders to offer certain benefits.
These benefits may include some of the following:
A discount of up to 15% when purchasing employer stock through the ESPP.
A Look-back provision that applies the discount to the cheaper price between the price at the beginning of the offering period and the price at the purchase date.
The ability to purchase shares with limited reporting.
The ability to sell outside of trading windows if you aren’t considered an insider.
If some of these concepts are going over your head, we recommend reading our ESPP Basics article here. If you want to see an example of how great an ESPP can be, we recommend reading our article that looks at how great Adobe’s ESPP has been for participants.
Back to the question... When Can I Sell My ESPP Shares?
Anytime after purchase (if company allows)
During open trading windows (most common)
As part of your 10b5-1 plan (always allowed, not always necessary)
These three answers may not seem very helpful, but the reality is that your ability to sell depends on company policy and your position within the company. To learn which of these selling methods apply to you, you’ll want to reach out to your plan administrator.
Companies that use Etrade or Charles Schwab may communicate directly within your online account when you’re eligible to sell ESPP shares.
Selling ESPP Shares Anytime After Purchase
If you are allowed to sell shares any time immediately after purchase, you’ll be able to lock-in the discount you received.
By locking in the discount, you’ll owe taxes on your gain, but you’ll be free to diversify what you sold from the ESPP and put it to use elsewhere (paying off debt, saving for a downpayment, investing in more than one company).
The biggest downside to selling immediately is that you’re going to owe taxes.
Taxes on ESPPs usually present with three possible scenarios, but if you’re selling immediately after purchasing your ESPP shares, it will always be considered a disqualifying disposition.
This phrase sounds worse than it actually is. The taxes you pay will be worth the flexibility to use the money how you best see fit.
Selling ESPP Shares During Open Trading Windows
Whether you are aware of them or not, your company has trading windows. These windows are periods of time in which employees are allowed to sell company stock without restriction. If you’re an executive or key employee, it’s possible that you’ll be restricted from selling during these trading windows which is why you may want to establish a 10b5-1 plan.
You can ask HR or the ESPP administrator for the trading windows in which you’ll be allowed to sell company stock.
Typically, trading windows will be shortly after your company’s earnings call. If you want to search when your company’s earnings will be reported, you can check here: https://www.nasdaq.com/market-activity/earnings
If your company uses Etrade or Schwab to manage company equity, the trading windows should be published front and center on the home page. If they aren’t there, you should be able to search on the site to find when the open trading windows are.
Selling ESPP Shares As Part of Your 10b5-1 Plan
As mentioned above, if you're an executive or someone with insider information, you may not be able to sell during trading windows. If you’re working on a project that’s confidential, you’ll likely be informed by compliance/legal that you will not be permitted to sell during a specific timeframe.
Some companies prefer that employees who are privy to insider, non-public information only sell company shares using 10b5-1 plans.
10b5-1 plan communicates your plans to sell company equity to your company’s plan administrator and company’s legal team. In the plan you set the conditions in which you’ll sell company equity. These conditions can include dates, prices, and specific instructions based on the type of equity you’re planning to sell. They are crucial you’re an executive or someone with insider information.
10b5-1 plans can be a little annoying to establish, but your employer can provide you resources to help make it easier. We’ll be publishing an article soon in which we will outline 10b5-1 best practices.
When Should You Sell Your ESPP Shares?
Typically the best time to sell your ESPP shares is right after you purchase them.
This will most likely cause you to have a greater tax liability than if you were to wait, but selling ensures (1) that you profit from the discount of the ESPP, (2) that you’ll be able to diversify/move the proceeds to other investments, and/or (3) that you will have the cash liquidity to take care of other needs.
That said, selling your ESPP shares is very much a personal decision and there are important questions to consider:
Does owning your company stock motivate you at your job?
Do you need cash for other needs?
Do you want to sell ESPP shares to pay off debt?
Do you feel strongly that your company is going to continue growing in the future?
Do you enjoy holding a significant portion of company stock?
Is the dollar amount of ESPP shares not a significant portion of your net worth?
Examples of When People Should Sell ESPP Shares
Credit Card Debt - If you have credit card debt, you’ll probably want to pay off that debt ASAP. Paying off your credit card debt is typically the wisest move, but there are cases in which it may make more sense to contribute to your ESPP. But even then, you should be selling your shares as soon as you can after purchasing them to pay off such high-interest debt.
Student Loans/ Car Loans - Purchasing stock through an ESPP is a great way to get free money to pay off student loans or car loans. Assuming you have a relatively low interest rate (under 10%) you can max your contributions to the ESPP with the intention of selling immediately after purchase.
Since you’re able to purchase stock through the ESPP at a discount, you can sell those shares to help pay off your loans faster than you could if you were to put money straight towards the loans.
Net Worth = 95% company stock - If your net worth is almost equal to what you own in your employer’s stock, you should be selling as soon as you can and diversifying a portion.
Diversifying can mean many things depending on your situation. If you don’t have an emergency fund, what you sell should go there. If you’re looking to invest, you can look at investing the proceeds of what you sell into other investments through Vanguard or Schwab (VTI may also be a great option for investing within the U.S.)
Net Worth = 10% or less company stock - If your ESPP shares don’t comprise a significant portion of your net worth, you can sell your shares or keep them. If you feel optimistic about your company’s future growth and performance, you may be inclined to hold on to your shares since you’re in a better position to afford that added risk. If you are not as optimistic about your company’s future growth and performance, then you may want to sell and move funds to meet other needs.
Conclusion of When Can I Sell My ESPP Shares
The ability to sell shares will vary by company and you should plan accordingly. Other questions of when to sell may vary based on your individual situation.
ESPPs are great tools to help build wealth. The better you understand them, the better off you’ll be.
As always, please comment with any questions or additional insights and click below if you’d like to receive an email when we publish more articles.