If I get 5000 dollars worth of Microsoft from my ESPP, does it make sense to just sell that immediately and put that money into my Roth IRA, and buy Microsoft again? (Assuming I like to hold Microsoft)
I’ll also just say make sure you are still qualified to contribute to a Roth IRA. I didn’t realize I exceeded the income limit in 2023 and had to pay a penalty for the excess contributions…
You can still do a backdoor Roth IRA
I generally always sell espp right way. It has weird rules about claiming long term gains in the US. Even if I wanted to hold, I’d sell and buy normal shares.
Every situation is different but some things to consider. If you don’t wait a year after the grant, you will pay short term capital gains tax which is quite a bit higher as it’s considered regular income than long term capital gains taxes depending your income bracket. No matter what you do, it’s better to act on those grants that are a year old. Secondly, you will pay capital gains taxes the year you sell and if they are ESPP you are usually buying them at a discount to market value. Remember you cannot sell and buy the same stock in the same 30 day window - it will be considered a wash sale. You could buy the index or another etf that has MS exposure if you want to stay with MS. Good luck. Consider all risks and consult your financial advisor as always.
For espp, if you wait a year, all of it is cap gains ? Or is the 10% discount considered ordinary income and any appreciation above that is cap gains. I’ve always been confused about this
@godaddy your information is not correct. If you sell at the price they vested at, your tax is already paid and you won’t pay any capital gains tax. The short term tax rate on capital gains is similar to income tax, and if you are putting it in a Roth IRA there is no reason to wait - you can put more into a Roth now than later, as it will increase within the Roth IRA tax free. You absolutely can buy within 30 days, again you are in a tax advantaged account. @reddit After 1 year, you are taxed at the long-term capital gains tax rate, which is lower than your earned income tax rate. In either case, you are only taxed on the gains above the price which it vested at, since shares were withheld on vesting day covering the tax on the vesting price.