The Stock Participation Plan (SPP) doesn’t apply to everyone, but I’m writing about my retirement and the SPP is a big part of my savings. If you work for a Fortune 500 company, chances are the company has a stock participation plan of some sort.
At my company, I can contribute up to 5% of my paycheck toward the SPP. The amount is deducted before I see my paycheck so I never miss it, similar to the 401k deduction. The SPP contribution is after tax though, and I get my shares every six months. The purchase price is set to 85% of the lower of the two prices between the first and last day of the contribution period.
Example – contribution period is from January 1st, 2010 to June 31st, 2010. The stock price was $15 on Jan. 1st and $10 on June 31st. So my price is 85% of $10 = $8.50
If I sell the shares right away, I would make 17.5% profit in this example. The least amount of money that I can make is 17.5% of my contribution and it could be more, depending on how the market is doing. If the price was reversed – 10$ on Jan. 1st and $15 on June 31st, my price would still be $8.50. Then I would make 77% profit instantly if I sell the shares at $15.
Example continued – if my contribution for the pay period is $850 and I sell the shares right away when I receive them.
case 1 – Stock price Jan. 1st = $15 and June 31st = $10. I would have $1,000, 17.5% profit. (1000/850 – 1)%
case 2 – Stock price Jan. 1st = $10 and June 31st = $15. I would have $1,500, almost double my invesment 77% profit. (1500/850 – 1)%
This is free money. Check if your company has an SPP and try to contribute up to the maximum allowable.
retirebyforty’s SPP strategies:
> Contribute maximum allowable, 5% of each pay check.
> Keep the stocks for at least one year so I don’t have to pay short term capital gain.
> Limit company stock to 5% of my total investment portfolio to make sure I am diversified.
Does your employer has an SPP? Do you contribute?